Directors Life Insurance - A Tax-Efficient Business Benefit!
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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.

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?
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.