Business Protection7 min read
Relevant life plan vs life insurance
A UK guide for company directors and employers comparing relevant life plans and personal life insurance, and when each may be a better fit.
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No P11D benefit in kind for employees
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Premiums are an allowable business expense
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What is a relevant life plan?
A relevant life plan is a tax-efficient life insurance policy taken out by an employer for an individual employee. It provides a death-in-service benefit, paying a lump sum to the employee's family if they pass away during the policy term.
Unlike group life schemes, a relevant life plan covers a single person and is individually underwritten. Premiums are paid by the employer as an allowable business expense, and the employee pays no Income Tax or National Insurance on the premiums. The payout is held in a discretionary trust, keeping it outside the employee's estate for Inheritance Tax purposes.
- Employer premiums are a Corporation Tax-deductible expense
- No P11D benefit in kind for the employee
- Payout held in trust, outside the estate for Inheritance Tax
- Individual underwriting means tailored cover
- Ideal for company directors and small businesses
- Can provide cover of up to 25 times salary or more
Who Benefits
Do You Need a Relevant Life Plan?
A relevant life plan is one of the most tax-efficient ways for a business to provide life cover for its people. It works for employers and employees of all sizes.
Company directors
Sole directors and small business owners can arrange tax-efficient life cover through their limited company, saving significantly compared to a personal policy.
Small businesses
If your business is too small for a group life scheme, a relevant life plan gives individual employees death-in-service cover without the overhead.
Higher-rate taxpayers
The tax savings are most pronounced for higher and additional rate taxpayers, because the employer pays the premiums before tax.
Tax Advantages
How the Tax Benefits Work
A relevant life plan is one of the few ways to get life insurance paid for by your business with full tax relief on both sides.
For the Employer
Premiums are an allowable business expense and are deductible against Corporation Tax. There are no employer National Insurance contributions to pay on the premiums.
Saving: Corporation Tax relief at 25% on premiums paid.
For the Employee
Premiums are not treated as a benefit in kind, so there is no P11D entry and no Income Tax or employee National Insurance to pay. The payout sits in trust, outside the estate.
Saving: No Income Tax or NI on premiums; IHT-free payout.
Written in Trust
The policy must be written into a discretionary trust. This keeps the payout outside the employee's estate and ensures it reaches beneficiaries quickly without probate.
Benefit: Fast payout, outside the estate for IHT.
Real Cost Savings
For a higher-rate taxpayer, a relevant life plan can cost significantly less than an equivalent personal policy because the premiums come from pre-tax company profits.
Example: A 40% taxpayer could save over half the effective cost.
Key Things to Know
A relevant life plan is not the same as a personal life insurance policy. It is owned by the employer and must meet HMRC rules to qualify for tax relief. The policy must be a pure protection policy with no investment element.
Cover is usually set as a multiple of the employee's salary, often between 4 and 25 times annual earnings. The policy term typically runs to the employee's expected retirement age.
- Eligibility - the employee must be a UK taxpayer
- Trust requirement - the policy must be written into a discretionary trust
- No surrender value - the policy is pure protection with no cash-in value
- Individual underwriting - cover is tailored to the individual employee
Tip: A relevant life plan can also be used to top up existing group life cover where the group scheme does not provide enough benefit for a specific individual.
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Knowledge Centre
Relevant life plan guides
Evidence-led articles for directors and employers comparing relevant life plans with personal cover.
FAQ
Relevant Life Plan FAQs
Common questions about relevant life plans in the UK
What is a relevant life plan?
A relevant life plan is a tax-efficient life insurance policy taken out by an employer for an individual employee. It provides a death-in-service benefit and is written into a discretionary trust. The employer pays the premiums, which are treated as an allowable business expense, and the employee does not pay any tax on the premiums as a benefit in kind.
Who can take out a relevant life plan?
Any UK employer can take out a relevant life plan for an employee, including company directors. It is particularly popular with small businesses, sole directors of limited companies, and firms that are too small to set up a group life scheme. The employee must be a UK taxpayer.
What are the tax benefits of a relevant life plan?
Premiums paid by the employer are an allowable business expense for Corporation Tax purposes. The employee does not pay Income Tax or National Insurance on the premiums, so there is no P11D benefit in kind. The payout is made through a discretionary trust, so it is normally outside the employee's estate for Inheritance Tax purposes.
How does a relevant life plan differ from group life insurance?
Group life insurance covers multiple employees under a single policy and requires a minimum number of members. A relevant life plan covers a single individual, making it ideal for small businesses or directors who want to top up existing group cover. Relevant life plans also offer individual underwriting, which can mean more tailored cover.
Does the policy need to be written in trust?
Yes. A relevant life plan must be written into a discretionary trust. This is what keeps the payout outside the employee's estate for Inheritance Tax purposes. The trust is set up when the policy is arranged, and the insurer typically provides the trust documentation.
What happens if the employee leaves the company?
If the employee leaves, the employer can stop paying premiums and the policy will lapse. The employee cannot take the policy with them, but they could arrange a new personal life insurance policy. Some employers choose to continue the policy for a short period during a notice period.
How much does a relevant life plan cost?
The cost depends on the employee's age, health, smoking status, occupation, the level of cover required, and the policy term. Because the premiums are a tax-deductible business expense, the effective cost to the employer is reduced. For a higher-rate taxpayer, the savings compared to a personal policy can be significant.
Can a relevant life plan include critical illness cover?
Some insurers offer relevant life plans with critical illness cover attached. This means the policy could pay out a lump sum if the employee is diagnosed with a specified critical illness, as well as on death. However, the tax treatment of the critical illness element should be checked carefully with a financial advisor.
Can company directors take out a relevant life plan for themselves?
Yes. A director of a limited company is an employee of that company and can therefore be covered by a relevant life plan. This is one of the most common uses, especially for sole directors of small limited companies who want tax-efficient life cover.
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