Many limited Company Directors remain unaware of relevant Life Insurance
Opinion piece by James Leckie
Many owner-managed limited companies continue to pay for life insurance personally without realising there may be another option.
Relevant life insurance allows an employer to provide life cover for an employee or director through the company. For eligible businesses, this can often be a more tax-efficient way to arrange life insurance than paying premiums from taxed personal income.
Despite having been available for many years, awareness of relevant life insurance remains relatively low outside specialist financial and accountancy circles. While many directors are familiar with pensions, dividends and company expenses, relevant life insurance is a benefit that is often overlooked.
As the founder of Relevant Life Insurance, I want to highlight:
“Many directors are familiar with the day-to-day tax planning opportunities available to limited companies, but relevant life insurance often isn’t one of them. We regularly hear from business owners who are surprised to learn their company may be able to provide life cover. It’s not suitable for everyone, and eligibility depends on the circumstances. However, many directors simply aren’t aware the option exists, so they never ask the question.”
How Relevant Life Insurance Works
Unlike personal life insurance, relevant life insurance is arranged by the employer for the benefit of an employee or director. The company pays the premiums, with the policy providing a lump sum if the insured employee dies during the policy term.
For many owner-managed businesses, that can provide a practical alternative to paying for life insurance from post-tax personal income. Subject to the normal rules, premiums are not usually treated as a benefit in kind, and many companies may be able to claim corporation tax relief because the policy is taken out for the purposes of the business.
Relevant life insurance is particularly popular with limited company directors, family businesses and smaller employers that want to provide life cover but do not have enough employees to justify a traditional group life or death-in-service scheme.
Why Awareness remains low
Although the product has existed for many years, it is rarely discussed outside financial advice and accountancy circles. As a result, many directors only discover it after speaking to an accountant, independent financial adviser or specialist insurance broker.
I believe more awareness would help directors ask better questions when reviewing their company finances and emphasise that:
“Relevant life insurance isn’t a loophole or a new tax planning idea. It’s an established employee benefit with well-defined rules. The challenge is that many directors simply don’t come across it until someone mentions it.”
“Directors should always seek independent advice before taking out any policy but understanding that relevant life insurance exists is an important first step.”
Who Relevant Life Insurance is designed for
A relevant life policy is designed for individual employees rather than groups and is typically written into trust so that any benefits can be paid directly to the employee’s chosen beneficiaries.
The arrangement is generally intended for employees and directors of limited companies. Sole traders and partners cannot usually take out relevant life insurance for themselves because they are not employees of a company.
New Specialist Resource for Company Directors
Created by the team behind ITContracting.com, the website explains how relevant life insurance works, who can qualify, how corporation tax relief may apply, the role of trusts, age limits, National Insurance considerations and the differences between relevant life insurance and personal life insurance.
Rather than selling insurance directly, the website focuses on providing clear, factual guidance written in plain English.
I want to stress:
“There’s an enormous amount of information online about personal life insurance, but much less dedicated to relevant life insurance. We wanted to create a specialist resource that explains the rules in a straightforward way and helps directors understand whether it’s something worth discussing with an independent financial adviser.”
The website also features practical guides covering common questions, tax considerations and the rules affecting relevant life insurance, making it a useful reference point for company directors, accountants and business advisers alike.
Author bio:
James Leckie is an economics graduate who worked in finance and business analysis roles before founding a series of popular business news sites. He is the editor of ITContracting.com and ByteStart.co.uk and has been publishing expert content on contracting, tax, and small business issues since 1999. Connect with James via LinkedIn,
Passionate content designer, contributor and content marketing allrounder at ClickDo.