Relevant life plan vs life insurance

A relevant life plan is a UK life insurance policy paid for by an employer for the benefit of an employee, including a director, and their family. It is a single-life death-in-service policy that sits outside the personal estate when written into a relevant life trust. Personal life insurance, by contrast, is paid for from after-tax income and gives more flexibility on cover, term, and ownership.

For many company directors and small business owners, a relevant life plan is a tax-efficient way to provide death-in-service cover where there is no group scheme. Personal cover often remains useful alongside it.

What is a relevant life plan?

A relevant life plan is a term life insurance policy that meets specific HMRC conditions. It pays a tax-free lump sum on the death or terminal illness of the insured employee during the term of the policy, into a relevant life trust for chosen beneficiaries.

Key features include:

• The employer takes out the policy on the life of an employee, including a director.
• The lump sum is paid into a discretionary trust, then on to beneficiaries such as family members.
• It is single-life only, so there is no joint life or business loan version.
• The policy is term-based and ends at a chosen age, usually before age 75.

HMRC sets out the conditions in its Employment Income Manual and related guidance. Both the employee and the employer should be comfortable that the policy meets those conditions.

Tax treatment of relevant life plans

The tax treatment is the main reason these policies exist.

• Premiums are usually paid by the company.
• HMRC guidance generally treats a qualifying relevant life premium as not being a benefit in kind for the employee, so there is no extra Income Tax or National Insurance for the employee on the premium.
• Premiums may be treated as a deductible business expense, subject to the local inspector of taxes being satisfied that they are wholly and exclusively for business purposes. HMRC’s Business Income Manual sets out the principles.
• The lump sum is usually paid into a trust and so often falls outside the employee’s estate for Inheritance Tax purposes, though the position depends on the trust and wider estate. GOV.UK explains the basic Inheritance Tax position.

The exact tax outcome depends on the company, the policy, and individual circumstances. Specific tax advice is sensible before setting one up.

What is personal life insurance?

Personal life insurance is owned by you as an individual. You pay premiums from after-tax income.

Common features include:

• Single life or joint life options. Joint life cover normally pays once on the first death.
• Level term, decreasing term, or whole-of-life options.
• The ability to write the policy into trust, including for Inheritance Tax planning.
• Cover that can run independently of any employment.

Personal cover is the right answer for many family protection needs that do not depend on a current employer or company.

When does a relevant life plan suit you?

A relevant life plan often makes sense if:

• You are a director of a UK limited company that does not have a group death-in-service scheme.
• You want the company to pay for cover in a tax-efficient way.
• You want the lump sum to go to your family through a trust.
• You are happy with single-life cover.

Small companies, owner-managed businesses, and contractors using a limited company often find relevant life plans useful, because they can replicate the death-in-service benefit large employers offer their staff.

When does personal life insurance suit you better?

Personal cover often makes more sense if:

• You want joint life cover with a partner, especially for mortgage protection.
• You want whole-of-life cover, for example for Inheritance Tax planning.
• The policy needs to continue beyond your current employment or the life of the company.
• You are not employed by a UK limited company.
• You want the policy in your own name without involving the business.

Personal cover can also sit alongside a relevant life plan. Many directors hold both: a relevant life plan paid by the company for death-in-service style cover, and a personal policy for joint protection or longer-term planning.

A worked example

A director of a small consultancy earns GBP 80,000 a year and wants GBP 500,000 of life cover until age 65.

Option A. A relevant life plan paid by the company. The premium is paid by the business, generally not treated as a benefit in kind for the director, and may be allowed as a deductible business expense subject to HMRC rules. The payout goes into a relevant life trust and on to the director’s family.

Option B. Personal life insurance paid from the director’s net income. The director pays the premium personally. The cover is more flexible and can be joint life or set up in trust as needed.

In practice, the choice depends on tax position, family setup, and other planning. Many directors take a relevant life plan for the bulk of personal cover and add a smaller personal policy for joint mortgage protection.

Watch out: common pitfalls

A few important points to keep in mind.

• HMRC conditions matter. A relevant life plan must meet the conditions for the tax treatment to apply. Setting one up without proper advice or trust documentation can put the tax benefits at risk.
• Trust wording. The relevant life trust must be set up correctly. The insurer normally provides the trust forms.
• Single life only. Couples cannot share a relevant life plan. Each director or employee has their own policy.
• Cover ends with employment. If the employee leaves the company, the policy may need to be assigned to the individual or it may end. Continuation options vary by insurer.
• Tax law can change. The figures, allowances, and rules can be updated by HMRC over time.
• Inheritance Tax planning still needs care. A relevant life plan written in trust normally sits outside the estate, but wider estate planning matters.

How does this connect to claims?

Protection insurance is designed to pay valid claims that meet the policy terms. The Association of British Insurers reported that UK protection insurers paid a record GBP 8 billion in combined group and individual protection claims during 2024.

For directors, the structure of cover affects how quickly the lump sum reaches the family and how it is taxed. A relevant life plan written into trust is designed to make that as straightforward as possible.

Bottom line

A relevant life plan is a tax-efficient way for a UK limited company to provide single-life death-in-service cover for a director or employee, paid by the business and held in trust for the family. Personal life insurance offers more flexibility, including joint life and whole-of-life options. The two can work together.

If you would like help comparing a relevant life plan with personal life insurance, GoInsureMe can talk you through the right structure for your situation. Specific tax and legal advice may also be sensible.