EMPLOYER FUNDED LIFE COVER
Individual life cover paid for by the business
A relevant life policy can provide death in service cover for an eligible director or employee where a group scheme is not available or does not meet the need. The policy must satisfy specific conditions.
A valuable employee benefit, when the structure is right
Relevant life cover is an employer funded life insurance policy for an individual employee. It is often considered for a director of a small company, a high earning employee whose group scheme benefit is limited, or a business without enough employees for a registered group life scheme.
The employer normally pays the premium and the policy is written under a suitable relevant life trust for the employee's beneficiaries. The policy must meet statutory conditions to receive the intended tax treatment.
It is not key person cover. The payment is intended for the employee's beneficiaries, not to compensate the company for a financial loss.
Why this matters
Royal London's business protection guidance distinguishes relevant life cover from company owned key person protection because the beneficiary, purpose and tax treatment are different.
Who may consider it
- An owner director who is an employee of a limited company.
- An employee whose existing death in service benefit is below the employer's intended level.
- A small company that cannot establish an appropriate group life scheme.
- An employee who needs an individual policy that can potentially move with employment, subject to insurer rules and a suitable future arrangement.
How the arrangement is structured
The employer applies for and pays for the policy. The insured person is the employee. A suitable trust holds the benefits for eligible beneficiaries. The policy can normally provide life cover and may include terminal illness benefit, but cannot be used as a general investment or provide every protection benefit.
The policy amount must be commercially justifiable as an employee benefit. The insurer may request remuneration and company information.
The tax position
Premiums may be treated as an allowable business expense when the arrangement is wholly and exclusively for the purposes of the trade, and benefits may fall outside the employee's estate when the statutory and trust conditions are met. Neither outcome is automatic.
We do not publish worked tax-saving figures, because the result depends on the company type, the employment position and the rates in force at the time. Your accountant and tax adviser confirm the position for your company before the policy is set up.
Cover for a director outside a group scheme
Illustrative Scenario
A limited company has two working directors and no group death in service scheme. The company wants to provide life cover for each director's family. Relevant life policies are considered for the directors as employees, held under suitable trusts. The accountant confirms the company's tax treatment and the arrangement is kept separate from key person cover owned for the company's benefit.
What readers need to consider
- The insured person must be an eligible employee. Sole traders and equity partners are not employees of their own unincorporated business for this purpose.
- The policy and trust must meet statutory conditions. A general discretionary trust should not be assumed to be suitable.
- The cover is for beneficiaries, not the company. It does not address key person loss or business debt.
- Tax treatment depends on current law and the employer's purpose and circumstances.
- Changes in employment, company status or ownership should trigger a review.
Frequently Asked Questions
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No. Relevant life cover is an employee benefit intended for beneficiaries. Key person cover is normally owned by the business to protect the business from financial loss.
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A sole trader is not an employee of a separate legal company, so this structure is generally not available for the sole trader personally. Other life insurance can be considered.
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A standard relevant life policy is designed around life cover and must meet specific statutory conditions. Some related products may offer separate benefits, but the structure and tax treatment need careful advice.
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The trustees receive and distribute the benefit for the eligible beneficiaries under the trust terms. The company should not receive it as a key person payment.
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No automatic promise should be made. The company's accountant should confirm whether the expense meets the relevant conditions in its circumstances.
You do not need to know which policy you need before speaking to us. Tell us what you are worried about protecting, and we will help you understand the options.
Discuss relevant life coverERG Finance provides protection advice from across the whole of the market.
This page provides general information and does not constitute personal advice. Eligibility, underwriting, exclusions, definitions, waiting periods, claim periods and premiums vary by insurer and policy. Cover normally ends if premiums are not maintained. We will explain the features, limitations and costs of any policy we recommend. Relevant life cover must meet statutory and trust conditions. Tax treatment depends on current law and individual circumstances. Advice from the company's accountant or tax adviser is required.