Why Every Director Should Think About Director’s Life Insurance
Quick Fire Questions with Matt Cotter, Business Protection Specialist.
“When you’re running a business, you will often prioritise growth, cashflow and clients. Yet many directors forget about protecting their own families in a tax-efficient way. Directors’ Life Insurance: also known as a Relevant Life Policy, is designed exactly for that.”
I caught up with Matt Cotter, our Business Protection Specialist at The Mortgage Broker, for a quick-fire Q&A on why this cover matters, how it works and what directors need to know. Just before that, let’s cover off what Director’s Life Insurance is:
Directors’ Life Insurance (Relevant Life): A Tax-Efficient Way to Protect Your Family
Directors’ Life Insurance, also known as a Relevant Life Policy, is a tax efficient way for UK company directors and employees to arrange personal life cover through their limited company.
Instead of paying premiums from your post tax income, the company pays. Those premiums are usually allowable as a business expense, there’s no P11D charge and the payout is designed to pass tax-free to your loved ones via a discretionary trust if you die or are diagnosed with a terminal illness.
This isn’t business cover like Key Person or Shareholder Protection – it’s purely personal family protection, funded by the company.
Who it’s for: Directors and employees of UK limited companies on PAYE (not sole traders or non-PAYE partners).
What it covers: Life cover and terminal illness (critical illness is not usually included).
Questions to Matt…
Q1. Matt, in simple terms: why should a director look at life insurance through the company?
The simple answer is value. If you buy life cover personally, you are paying with income that’s already been taxed. When the company pays for it as a Relevant Life Policy, the cost is usually tax-deductible and it’s not treated as a perk or benefit-in-kind. That makes it far more cost effective. In short, your family gets the same protection, but it costs you a lot less.
Q2. What’s the biggest myth or misunderstanding you come across?
A lot of directors think it’s some kind of business cover, like Key Person insurance. It’s not. Relevant Life is there for your family, not the company. Another common myth is that it is only affordable for large businesses with lots of staff. Whereas, in reality, it’s perfect for small companies or even one-person limited companies.
Q3. If a director is unsure whether to take personal life insurance or Relevant Life, what’s your top tip?
Look at the net cost, not just the headline premium. On paper, the monthly cost of a personal policy and a Relevant Life Policy might look similar. But once you factor in tax relief, corporation tax savings, and no NI or benefit-in-kind charges, Relevant Life usually wins hands down for limited company directors.
Q4. The tax side can sound complicated. How do you explain it in simple terms?
I usually say: “With personal cover, you pay from taxed income. With Relevant Life, the company pays, the premiums are often deductible, and your family gets the money tax free via a trust.”
That’s the easiest way to think about it. The company pays, the government chips in, and your family benefits.
Q5. Are there common mistakes directors make when trying to do this themselves?
Yes, for sure: the most common mistake is skipping the trust. Without the discretionary trust, you lose the speed and tax efficiency. Another mistake is taking out a standard personal policy through the company, which can cause messy tax consequences. Getting the structure right from the start makes all the difference.
Q6. Last one: if you only had 30 seconds to convince a busy director, what would you say?
You insure your phone and your car, but your family is worth so much more. Relevant Life lets your company fund personal life cover in the most tax efficient way possible. It takes very little time to set up and it could change your family’s future if the worst happens.
Any Final Thoughts
Directors’ Life Insurance is not about the business, it is about your loved ones. By letting the company fund the policy, you protect your family while making the most of the tax benefits available.
If you want any advice tailored to you and your business, you can book a free appointment with Matt at any time.
10 Minutes
