Most company directors pay for life insurance the expensive way.
Out of their own pocket. With money they have already paid income tax and National Insurance on.
Here is the part most of them never get told.
Your limited company can pay for your life cover instead. Legally. And it can cost you a lot less.
It is called Relevant Life Cover.
Did you know?
A Relevant Life Plan is a life insurance policy that your company takes out and pays for, on you.
It works like the "death in service" benefit big employers give their staff. Except you do not need a big team or a group scheme to get it.
If you die during the policy term, it pays a tax-free lump sum to your family.
And the way it is taxed is the interesting bit. When it is set up correctly:
The premiums are normally treated as an allowable business expense. So your company can usually claim corporation tax relief on them.
The premiums are not usually treated as a benefit in kind. So there is no P11D, and no extra income tax for you personally.
There is no National Insurance to pay on the premiums. Not the employer's, not yours.
The payout is normally tax-free.
And because the policy is written into a trust, the lump sum usually sits outside your estate. So it is not normally caught by the 40% inheritance tax either.
Add all of that up and the same cover can work out meaningfully cheaper than a personal policy you pay for yourself. You are buying it with company money before tax, not with what is left after the taxman has taken his cut.
Who it is for
Relevant Life Cover is built for directors and employees of limited companies.
It is a strong fit if you run a small company and do not already have a group death in service scheme.
A few rules on who can take it:
Salaried directors and employees qualify.
Sole traders cannot take it out on themselves, because there is no employer relationship. But they can set it up for their employees.
Partners in a partnership or an LLP cannot cover themselves either.
How to set it up
It is more straightforward than it sounds. Roughly, the steps are:
Decide the cover. The amount is usually a multiple of your total earnings, salary plus dividends. Often somewhere between 15 to 30 times your income. The multiple is higher when you are younger and comes down as you get closer to 75.
Get the policy through a provider that offers Relevant Life Plans. Most of the big names do.
Write it into a discretionary trust from day one. This is not optional. The trust is what keeps the payout out of your estate and gets the money to your family quickly. The provider normally hands you the trust paperwork as part of the setup.
Name your trustees and your beneficiaries. Usually your spouse, your children, whoever you want looked after.
Let the company pay the premiums, and keep the paperwork tidy. HMRC cares that the trust is set up properly and the documents are consistent.
The things to know before you get excited
A few honest limits, so you have the full picture and not just the sales version:
The cover has to end before your 75th birthday. It is protection for your working life, not forever.
It only covers death, and usually terminal illness. It cannot include critical illness or income protection. Those are separate products.
It has no cash-in value. You cannot surrender it for a lump of money. It only pays out on a claim.
The corporation tax relief is normally given, but it sits with your local HMRC inspector under the "wholly and exclusively for the business" rule. In practice it is routine, but it is not a cast-iron guarantee.
Trusts can carry their own occasional charges over the long term. Worth a five minute chat with your accountant.
The takeaway
If you are a company director paying for your own life insurance out of your own taxed income, you may be doing it the hard way.
Relevant Life Cover lets the business carry the cost, drops the tax drag, and still pays your family a tax-free lump sum if the worst happens.
One conversation with an accountant or a protection adviser will tell you if it fits.
It is the kind of thing that feels boring, right up until the day it is the most important policy your family ever had.
This is general information, not financial or tax advice. Tax treatment depends on your circumstances and the rules can change. Speak to a qualified accountant or financial adviser before you act.
