When was Relevant Life Insurance introduced?
Relevant life insurance has become a popular form of protection for limited company directors, although it has only been available since 2009.
Employer-funded life insurance existed long before then, but changes to the tax rules from April 2009 made it possible to arrange cover for an individual director or employee through this type of policy.
Those changes gave small businesses a practical way to provide life cover for individual employees without needing to set up a traditional group life assurance scheme.
Relevant life insurance was introduced from 6 April 2009, following changes made by the Finance Act 2008. It allows employers to provide tax-efficient life cover for individual employees and directors using the legislation governing excepted group life policies.
If you’re researching the topic for the first time, try our guide on what relevant life insurance is as a useful starting point.
Before relevant life insurance
Prior to 2009, if you were an employer wanting to provide life cover, you generally had two main options.
Larger organisations often offered group life assurance, sometimes called death in service benefit, covering many employees under a single scheme.
Smaller businesses, particularly owner-managed companies, rarely had the same flexibility. A director who wanted life insurance would often arrange a personal policy and pay the premiums from taxed income.
Some businesses also took out key person insurance, but this serves a different purpose. Rather than protecting an employee’s family, it protects the business itself against the financial impact of losing someone important to the company.
Read more about the differences here: relevant life insurance vs key person insurance.
The Finance Act 2008
Relevant life insurance was introduced by the Finance Act 2008.
Although the Act became law during 2008, the new rules did not take effect until 6 April 2009, the start of the 2009/10 tax year.
From that date, employers could arrange a qualifying relevant life policy for an individual employee or director under legislation based on the existing rules for excepted group life policies.
A relevant life policy is treated for tax purposes as an excepted group life policy, even though it covers only one individual. To qualify, the policy must meet several conditions set out in the Income Tax (Trading and Other Income) Act 2005 (sections 480–482):
- Benefits must stop by age 75 (the policy cannot pay out on deaths after that age).
- The only benefits payable are death benefits, or a refund of unused premiums if the policy is cancelled — it must have no surrender value or investment element.
- Benefits can only be paid on death, not on any other contingency such as critical illness or disability.
- The beneficiaries must be individuals (typically family or dependants) or charities, not the business itself or fellow shareholders.
You can read HMRC’s detailed guidance on these conditions in its Insurance Policyholder Taxation Manual, starting at IPTM7025.
Why was it introduced?
The aim was to give employers a way of providing life cover for individual employees without requiring a full group life arrangement.
This was particularly useful for smaller employers with only one or two directors or employees.
For many owner-managed companies, traditional group schemes were either unavailable or uneconomic. Relevant life insurance provided an alternative that fitted much better with the way small businesses operate.
Today, many limited company directors use relevant life insurance as part of their wider remuneration planning.
You can read more about the tax benefits of relevant life insurance in our dedicated guide.
Why did it become popular?
Relevant life insurance was initially a relatively specialist product.
Over time, awareness grew among accountants, financial advisers and owner-managed businesses, with several factors contributing to its popularity.
For many directors, premiums are normally paid by the company rather than from personal (post-tax) income.
Provided the qualifying conditions are met, premiums are often treated as an allowable business expense for corporation tax purposes; they do not normally create a Benefit in Kind, and the proceeds are usually written into trust for the employee’s beneficiaries.
Taken together, these features made relevant life insurance an attractive alternative to paying for personal life cover from taxed income.
Our guides explain:
- whether premiums are a business expense
- whether relevant life insurance appears on a P11D
- how trusts work with relevant life policies
Has the legislation changed since 2009?
The basic framework introduced in 2009 has remained largely unchanged.
HMRC has expanded and updated its guidance over the years, but the core qualifying conditions have remained remarkably consistent.
A relevant life policy must still satisfy the legislative requirements if it is to receive the tax treatment normally associated with these policies.
Our guide to HMRC’s rules on relevant life insurance explains those conditions in more detail.
Which insurers offer relevant life insurance?
The market has expanded significantly since the first policies became available.
Today, many of the UK’s largest life insurance companies offer relevant life policies, including:
Our guide to relevant life insurance providers compares the main insurers and explains why provider choice can matter.
Timeline
| Year | Development |
|---|---|
| 2008 | Finance Act 2008 establishes the legislative framework for relevant life insurance. |
| 6 April 2009 | Relevant life insurance becomes available under the new rules. |
| 2010s | The product becomes increasingly popular among contractors, consultants and owner-managed companies. |
| Today | Relevant life insurance is widely recommended by accountants and independent financial advisers as part of tax-efficient remuneration planning for eligible directors and employees. |