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Directors’ Life Insurance (Relevant Life): Tax-Efficient Cover for UK Company Directors
Directors’ Life Insurance, often called a Relevant Life Policy, is a clever way for a limited company to provide personal life cover for a director or employee. Instead of you paying premiums out of your taxed income, the company pays. The premiums are usually treated as a business expense and there’s no P11D benefit-in-kind with the payout designed to go tax-free to your family via a discretionary trust, if you pass away or are diagnosed with a terminal illness.
It’s not designed for Key Person cover or shareholder buyouts, it is personal family protection funded by the company. Our Business Protection Specialist can guide you through the setup and provide live quotes in minutes.
Understanding Directors Life Insurance
Are you a company director concerned about what would happen should you pass? Are you looking into the various types of life insurance available to you and wondering what are your best options?
Life insurance can be a tricky subject. We don’t like to dwell on the negatives, but it’s important to plan for eventualities. Let us answer some questions you may have, such as:
- Is there specific life insurance for company directors?
- Is director’s life insurance paid by the company?
- How much does it cost?
- Is life insurance for directors tax deductible?
- Is it a benefit in kind?
- How does director’s life insurance differ from a standard personal life policy?
We’ll look at all these questions and more in order to give you the information you need to make your life insurance choices.
Directors’ Life Insurance: FAQ's
Think of it as life insurance that your company pays for on your behalf. Instead of you dipping into your own pocket, your limited company picks up the bill. If something happens to you, a lump sum goes straight to your family via a trust — normally tax-free. It’s a really smart way for directors to get personal protection through the business.
No. When it’s set up correctly as a Relevant Life Policy, it isn’t treated like a perk, so there’s no P11D form or extra tax bill to worry about. The premiums are simply a company expense — not a benefit you’re taxed on.
Yes, in most cases. Because the cover is there to protect an employee or director, the cost is usually an allowable business expense, which means it can reduce your corporation tax. Every business is different, so we’ll check that for you — but nine times out of ten, it’s tax-efficient.
It’s designed for people who are on the payroll of a limited company — so directors and employees paid via PAYE. If you’re a sole trader or part of an LLP without PAYE, it usually won’t fit. Also worth knowing: this is about looking after your family, not the company, so it doesn’t replace Key Person or Shareholder Protection.
The trust is the secret sauce. Without it, the payout could get tangled in your estate and potentially face inheritance tax. With it, the money usually goes straight to your chosen people, tax-free, and quickly. We’ll set up the discretionary trust as part of the advice process so you don’t have to stress about the paperwork.
No — Relevant Life is strictly life and terminal illness cover. If you also want protection against things like heart attacks, strokes, or cancer, we’d add Critical Illness cover or Executive Income Protection alongside it. Think of Relevant Life as the foundation, then you can build extra layers if you need them.
Key Person is all about protecting the business — making sure the company survives if a key player can’t work. Directors’ Life Insurance is personal: it’s about making sure your family is financially secure if something happens to you. Two different risks, two different policies.
When it’s set up correctly — yes, in almost every case. The money is paid into a trust, so it doesn’t form part of your taxable estate. That means your family gets the money they need, without a big tax bite.
You’ve got options. You can normally transfer the policy to your new employer, or take it on personally and keep the cover going. The way the tax works may change, but the cover itself doesn’t have to stop just because your business circumstances do.
Most directors combine Relevant Life with Executive Income Protection (so the company covers your sick pay if you can’t work), and sometimes Critical Illness too. That way you’ve covered life, illness, and income. For the business itself, you’d look separately at Key Person or Shareholder Protection.
At a glance
Who it’s for: Directors or employees of a UK limited company who are on PAYE. It’s not suitable for sole traders or LLP partners without PAYE.
What it covers: Life cover, plus terminal illness. It does not usually include critical illness.
How it works: Your company pays the premiums. The policy is written into a discretionary trust, so the benefits go directly to your chosen beneficiaries.
Tax position (plain English):
- Premiums: Usually deductible against corporation tax if set up correctly. No P11D or benefit-in-kind charges for the person insured.
- Benefits: Paid into the trust, not taxed under EFRBS rules, and normally tax-free to your beneficiaries.
What it’s not for: It doesn’t replace Key Person Insurance, Shareholder Protection, or other business-focused policies.
Key note: Tax treatment always depends on your personal and business circumstances, and the law can change. It is very important to get advice.
Quick Fire Questions:
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Why Director's Choose Relavent Life over Personal Cover?
Lower Net Cost
Premiums are paid by the company, not you personally, and there’s usually no NI or benefit-in-kind charge.
Estate Planning Benefits
The payout is placed in trust, so it normally sits outside your estate and avoids inheritance tax.
Personal Protection, Not Business Cover
The money goes directly to your family, not into the company.
How is Director’s Life Insurance set up (properly)
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Advice & scoping: We check eligibility, agree the cover amount and term, and confirm who you want to benefit.
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Trust deed: The policy is placed into a discretionary trust from day one, so the tax advantages are secured.
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Underwriting & issue: The company is the policyholder, and the director/employee is the life insured.
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Annual review: We revisit cover as your salary, dividends, loans or family situation changes.
Common mistakes to avoid
What we need to quote quickly
- Date of birth, smoker status, and health details
- Employment status (PAYE), salary and dividends
- Desired lump sum and policy term
- Names of your beneficiaries for the trust
Smart add-ons for directors
Executive Income Protection (EIP): Paid for by the company, usually deductible, not a benefit-in-kind. It protects your income if illness or injury stops you working, and complements a Relevant Life Policy perfectly.
Key Person or Shareholder Protection: Designed to protect the business or ownership structure, not your family. These can be arranged alongside Relevant Life for a full protection package.
What Is Directors Life Insurance?
Relevant life cover is actually the official or industry term for directors life insurance. This type of policy has the same purpose as a standard personal life insurance policy, namely to make a lump-sum payment to your beneficiaries if you were to die.
Relevant Life Insurance differs from a personal policy in that it is paid for by the company, rather than the individual, and with it comes many benefits, including tax-deductible status.
What does this mean?
If you are the director of a company, you can have a tax-deductible life insurance policy, paid for via your company.
There are many advantages to this type of policy which we’ll explore below.
Key Points About Directors Life Insurance
Relevant life insurance, also known as directors’ life insurance, has several useful benefits, including:
It is paid for via the company
As mentioned above, this type of policy is taken out and paid for by the company, not the director as an individual. The policy is therefore owned by the company, bringing with it some useful tax efficiencies.
It is considered a ‘death-in-service benefit’
This means that this type of policy is an employer-provided benefit. Not only is this good news for the employee, in this case, a director, but it also can be a good way to attract talented employees to your company by offering this (not legally mandatory) benefit.
It is especially suited to smaller businesses
If your company can’t obtain group life insurance because you have too few employees, you can take out a relevant life insurance policy to cover high-earning employees. This is also useful as it doesn’t count towards their pension lifetime allowance.
Is Directors’ Life Insurance Tax Deductible?
Yes – this type of insurance policy is highly tax efficient. There are several tax advantages:
Tax relief can be claimed by the company on the insurance policy premiums. Relevant life insurance is an allowable business expense. As a tax-free expense it is subtracted from company profits, thus reducing your overall corporation tax payment.
As business life insurance for directors isn’t a P11D benefit in kind, it is income tax-friendly; a company director will not need to make additional National Insurance or income tax payments. The company itself will also not need to make additional employer National Insurance payments.
In the event of the insured director dying, a payment is made to his/her beneficiaries. This is a lump sum payment that is free from income tax, capital gains tax, and inheritance tax.
Things to note:
The policy premiums have to be paid via the company.
Because of the tax benefits mentioned above, the policy has to qualify as a tax-free business expense. The business must own and pay for the policy.
The policy must be written into a trust.
In order to work correctly as a tax-efficient insurance policy, the payout must go to a discretionary trust. This effectively means that the lump-sum payment bypasses the company and the deceased’s estate. The beneficiaries receive a tax-free payment.
The policy must not be set up for the purposes of tax avoidance.
Although highly tax-efficient, the policy has to meet HMRC requirements and can’t be created just to avoid paying tax.
Who Can Have a Directors Life Insurance Policy?
A relevant life insurance policy doesn’t just cover company directors, it can be set up by various companies and can cover other employees.
Some requirements include; being a UK resident, aged between 18 and 73 (before the employee reaches their 74th birthday).
If your business has fewer than five employees you may not be able to set up group life insurance, however, relevant life insurance is perfect in this case. Small limited companies can take out relevant life insurance for director, and other employees, and get the protection they’re not eligible for under a group life insurance policy.
Contractors and consultants who provide services via a limited company are typically eligible for relevant life insurance.
An employee of a charity can qualify for relevant life insurance. The policy should be written into a trust and the beneficiary should be a charity or an individual.
Directors Life Insurance - Who Isn’t Eligible?
Relevant life insurance is designed to cover employees of a business. Some people don’t qualify for this type of life insurance and would need to set up a different type of policy for their life insurance needs. Those not eligible include:
Non-salaried directors
If you are a director of a company, but don’t draw a salary, you don’t qualify for directors life insurance.
Company shareholders
Likewise, shareholders and equity partners who are not employed by the company are ineligible.
Sole traders
Self-employed sole traders cannot have relevant life insurance as they are not employed by a company.
Non-UK residents
Ineligibility also applies to non-UK residents as well as those outside of the age requirements (under 18 / over 75 years of age)
What Does Directors’ Life Insurance Cover?
Relevant life insurance for directors also known as directors life insurance typically covers death and terminal illness.
Death
If the ensured party dies while employed by the company then the policy pays out a tax-free lump sum to the named beneficiaries.
Terminal illness
Terminal illness is also usually included if the insured individual is diagnosed with an illness and has been given less than a year to live.
Directors life insurance is a specific type of death in service benefit set up to pay a lump sum to the beneficiaries if the insured director dies or is given a terminal illness diagnosis of 12 months or less while employed by the company.
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Directors Life Insurance vs Personal Life Policy
What are the key differences between a directors life insurance policy and a standard life insurance policy?
Premiums The business takes out and owns the policy and pays the premiums. Tax status As an allowable business expense, the policy enjoys tax-free status with regards to premiums, and additionally, the payout made to the beneficiary is also a tax-free lump sum. Suitability To be eligible for relevant life insurance you have to meet certain criteria, namely to be an employee of a business, and the business takes out and pays for the insurance policy. Premiums The policy is owned by the insured individual, who also pays the premiums. Tax status A standard life insurance policy does not benefit from the same tax advantages of a relevant life insurance and is therefore subject to normal taxation, for example for the premiums and inheritance tax. Suitability A personal life insurance policy is for individuals.Directors life insurance
Standard personal life policy
How Much Does Directors’ Life Insurance Cost?
The cost of directors life insurance will depend on several factors that an insurance company will take into account, such as:
Age – an older person is statistically more likely to die and this will mean higher premiums.
Health – a healthy, non-smoker, with no pre-existing health issues and a good medical history is likely to result in lower premiums than an individual with bad health and lifestyle.
Amount of cover required – the amount that the policy will pay out in the event of the employee’s death will of course affect the premium costs.
Occupation – the type of work the company does and the role of the individual can make a difference to the premiums, based on perceived risk of death to the employee.
Similar to standard life insurance, a director’s life insurance policy will be calculated on various factors.
Again, the amount of cover can vary, and factors in some things, such as age. Cover is typically a multiple of the employee’s salary and as the age of the employee increases, the remuneration usually goes down accordingly. As an example: Up to age 40 = 30 x salary Up to age 50 = 20 x salary Age 50-75 = 15 x salary This will vary according to the insurer but gives you a rough idea.How Much Cover Can You Get?
Matt Cotter is a protection specialist who has expertise across business and personal protection structures.
5 Minute Interview.
“It is the most tax-efficient way for directors to look after their families.”
Think of it as life insurance that your company pays for on your behalf. Instead of you dipping into your own pocket, your limited company picks up the bill. If something happens to you, a lump sum goes straight to your family via a trust — normally tax-free. It’s a really smart way for directors to get personal protection through the business.
No. When it’s set up correctly as a Relevant Life Policy, it isn’t treated like a perk, so there’s no P11D form or extra tax bill to worry about. The premiums are simply a company expense — not a benefit you’re taxed on.
Yes, in most cases. Because the cover is there to protect an employee or director, the cost is usually an allowable business expense, which means it can reduce your corporation tax. Every business is different, so we’ll check that for you — but nine times out of ten, it’s tax-efficient.
It’s designed for people who are on the payroll of a limited company — so directors and employees paid via PAYE. If you’re a sole trader or part of an LLP without PAYE, it usually won’t fit. Also worth knowing: this is about looking after your family, not the company, so it doesn’t replace Key Person or Shareholder Protection.
The trust is the secret sauce. Without it, the payout could get tangled in your estate and potentially face inheritance tax. With it, the money usually goes straight to your chosen people, tax-free, and quickly. We’ll set up the discretionary trust as part of the advice process so you don’t have to stress about the paperwork.
No — Relevant Life is strictly life and terminal illness cover. If you also want protection against things like heart attacks, strokes, or cancer, we’d add Critical Illness cover or Executive Income Protection alongside it. Think of Relevant Life as the foundation, then you can build extra layers if you need them.
Key Person is all about protecting the business — making sure the company survives if a key player can’t work. Directors’ Life Insurance is personal: it’s about making sure your family is financially secure if something happens to you. Two different risks, two different policies.
When it’s set up correctly — yes, in almost every case. The money is paid into a trust, so it doesn’t form part of your taxable estate. That means your family gets the money they need, without a big tax bite.
You’ve got options. You can normally transfer the policy to your new employer, or take it on personally and keep the cover going. The way the tax works may change, but the cover itself doesn’t have to stop just because your business circumstances do.
Most directors combine Relevant Life with Executive Income Protection (so the company covers your sick pay if you can’t work), and sometimes Critical Illness too. That way you’ve covered life, illness, and income. For the business itself, you’d look separately at Key Person or Shareholder Protection.
Summary
If you are a company director and employee of a business, you have the opportunity to have a directors life insurance policy. There are many benefits to both you as an individual and to the company, the main benefit being tax-efficiency.
Compared to a standard, personal life insurance policy, you can effectively avoid income tax, National Insurance, capital gains tax and inheritance tax.
There are some disadvantages, mainly that you must be employed by the business at the time of your death. With this in mind you may want to have a personal policy in addition to the directors life insurance policy.
FAQs
No, it’s not necessary to die during the working day, or even for your death to be related to your job. The only requirement is that you are employed by the company at the time of your death.
Unfortunately no, critical illness is not usually covered by directors life insurance. There are other policies you could look into, such as directors’ income protection insurance.
No, having relevant life insurance isn’t counted towards your pension allowance and has no impact on your pension.
There are several options in this eventuality, but typically the policy can be suspended or transferred.
I have more questions
We are here to help. Contact us and our highly qualified (and friendly) team will answer all your questions about directors’ life insurance or any other queries you may have.