The Key Benefits of Relevant Life Insurance for Directors and Employees
Relevant life insurance is a cost-effective and tax-efficient way for businesses to provide life cover for their directors and employees. It ensures that if a key member of staff passes away or is diagnosed with a terminal illness, their family receives a lump sum payout. Designed specifically for limited companies, it is a flexible alternative to group life schemes and provides meaningful protection without extra tax burdens.
What Is Relevant Life Insurance?
Before exploring the benefits, it is important to understand what relevant life insurance actually is. So, what is relevant life insurance? It is a life cover policy taken out by a business on behalf of an employee or director, with premiums paid by the company and the benefit paid to the employee’s family through a trust.
Relevant life insurance is often confused with other types of business protection, but it serves a different purpose. Unlike Key Person Insurance, which benefits the business by protecting profits, relevant life insurance is designed to look after the insured’s family. The payout goes directly to the beneficiaries, not the company. Most policies also include terminal illness cover, meaning th
e benefit can be paid early if the insured person is diagnosed with a terminal condition and has less than 12 months to live.
To learn more about how it works, visit the relevant life insurance page at My Key Man Insurance.
How Does Relevant Life Insurance Work in Practice?
Imagine a small, limited company with two directors. The business takes out relevant life insurance for each director, with premiums paid directly by the company. These payments are treated as an allowable business expense, reducing the company’s corporation tax.
If one of the directors were to pass away, the insurer pays a lump sum into a trust, which then distributes the funds to the director’s family. The payout is free from corporation, income, and inheritance tax, ensuring the family receives full financial support.
This structure makes relevant life insurance one of the most effective ways to combine personal financial protection with corporate tax efficiency, providing peace of mind for both employees and business owners.
Overview of the Key Benefits
Relevant life insurance offers a wide range of advantages that benefit both businesses and employees. From significant tax savings and family protection to staff retention and ease of setup, it is designed to provide maximum value with minimal complexity.
For businesses, the main appeal lies in the ability to offer meaningful life cover while keeping costs tax efficient. For employees and directors, it provides reassurance that their families will be financially secure in the event of their death.
Below, we explore each of these bene
fits in greater detail to help you understand how relevant life insurance can support your company’s goals and your employees’ well-being.
Significant Tax Savings for Businesses and Employees
One of the biggest advantages of relevant life insurance is its tax efficiency. For the company, the premiums are usually treated as an allowable business expense, meaning they can be offset against corporation tax. This provides savings for both the business and the insured individual.
For employees and directors, there is no income tax or National Insurance contribution to pay on the premiums because they are not classed as a benefit in kind. This means the full cost of protection is covered by the company while the employee enjoys complete peace of mind.
For example, if a higher-rate taxpayer pays £100 a month for personal life insurance, they need to earn about £180 before tax to cover that cost. Through a company-paid relevant life insurance policy, the same £100 premium is fully deductible against corporation tax, potentially reducing the real cost to the business to around £58. Over 20 years, which
is a saving of nearly £15,000, a clear example of how tax-efficient this protection can be.
Financial Security for Loved Ones
Relevant life insurance provides invaluable protection for an employee’s family or dependents. If the insured person passes away during their employment, the policy pays out a tax-free lump sum to their beneficiaries. This ensures that loved ones have financial support during a difficult time, helping them manage expenses such as mortgage payments, education, and everyday living costs.
The policy is written into a trust from the outset, meaning the payout bypasses the business and the insured’s estate. This ensures the money reaches the intended beneficiaries quickly and without inheritance tax complications. For directors, this is an excellent way to secure personal family protection through their business while maintaining full tax efficiency.
Ideal for SMEs and Directors
For small and medium-sized businesses, relevant life insurance provides a simple alternative to group life schemes, which can be expensive and complicated to administer. Even single directors of limited companies can take out a policy, making it ideal for those who want personal cover arranged through their business.
Directors often use relevant life insurance to mirror the benefits of a group life policy, but with greater flexibility. The company pays the premiums, yet the policy benefits the individual’s family, not the b
usiness. This structure ensures directors can enjoy the same level of financial security as employees in larger corporations.
No Benefit in Kind or Inheritance Tax
Another key advantage of relevant life insurance is that it avoids many of the tax pitfalls associated with personal policies. The premiums paid by the company are not treated as a benefit in kind, so employees and directors do not pay additional income tax or National Insurance on the cover.
Additionally, when the policy is written in trust, the payout is usually free from inheritance tax. This allows beneficiaries to receive the full amount without deductions, making relevant life insurance one of the most tax-friendly protection options available in the UK.
Boosts Employee Retention and Morale
Offering relevant life insurance demonstrates that a business values its people. For employees, knowing that their families would be financially supported in the event of their death brings reassurance and loyalty. For directors, it reflects a company culture that prioritises wellbeing and responsibility.
Including relevant life insurance as part of an employee benefits package can also enhance your company’s image as a responsible, people-first employer. Many professionals now value job security and benefits as much as salary, so offering this type of cover can give your business a competitive edge. It is particularly useful for SMEs competing with larger firms that already provide group life insurance schemes, allowing smaller companies to offer comparable benefits with minimal cost.
Flexibility and Portability
Relevant life insurance offers flexibility that suits both businesses and individuals. Cover levels can be tailored to match each employee’s needs, taking into account their salary, age, and family circumstances. Many insurers also allow policies to be adjusted as circumstances change, for example, when an employee receives a pay rise or has children.
If an employee leaves the company, the policy can often be transferred to a new employer or turned into a personal life policy, meaning the protection can continue seamlessly. This adaptability makes it a long-term solution for both businesses and their teams, ensuring protection remains in place even as careers evolve.
How to Choose the Right Level of Cover
When deciding on a relevant life insurance policy, the right level of cover should reflect the individual’s salary, dividends, and family financial needs. Most insurers allow cover up to 25 times the employee’s annual remuneration. Reviewing your company’s budget and employee circumstances can help determine the right balance.
For example, a younger employee with a mortgage may require a higher level of cover compared to an older director nearing retirement. It is important to regularly review cover levels to ensure they remain aligned with changing circumstances. To find a policy that fits your business and budget, request a personalised relevant life insurance quote.
Easy Setup and Simple Administration
Relevant life insurance is simple to arrange. The business takes out an individual policy for each insured person, pays the premiums directly, and places the policy in trust for the chosen beneficiaries. There is no need for a minimum number of employees or a group scheme, making it an accessible solution for companies of all sizes.
Most insurers offer online management and renewal options, so updating details or adjusting cover is straightforward. Once in place, the policy continues for as long as the individual remains employed, ensuring long-term peace of mind for both the employer and employee.
Why Relevant Life Insurance Is a Smart Choice
Relevant life insurance combines comprehensive protection with valuable tax benefits, making it one of the best business life cover options available. It offers peace of mind to employees, cost savings to employers, and financial security to families. For directors, it is a practical and tax-efficient way to provide personal protection while showing care and responsibility for their team.
Whether you run a small business or are a company director seeking protection for your family, relevant life insurance offers a reliable, flexible solution that benefits everyone involved. It is a long-term commitment to employee wellbeing and a practical investment in business reputation.
Find Your Relevant Life Insurance Today
Relevant life insurance is more than just a tax-efficient policy; it is a sign that a company values its people and understands the importance of security. For business owners, it provides peace of mind and financial protection while supporting a positive workplace culture. Whether you are protecting your family or offering employee benefits, it is one of the simplest and most effective ways to do so.
Take the time to explore your options and secure lasting peace of mind. Visit My Key Man Insurance today to find out more about relevant life insurance and how it can benefit your business and employees.