What Is a Relevant Life Policy?
A Relevant Life Policy (RLP) is a death-in-service life insurance policy taken out by an employer for an individual employee. The employer pays the premiums. If the employee dies during the term, a lump sum is paid to their family through a trust.
Large companies often provide death-in-service cover through group schemes. Small companies with one or two directors usually can't access those group rates. An RLP gives small company directors the same tax treatment without needing a group scheme.
The policy must be set up by the employer (the limited company), not the employee personally. It must be written into trust from the start.
The Cost of Paying Personally
When you pay for personal life insurance as a company director, the money passes through several layers of tax. Your company earns a profit, pays Corporation Tax at 25%, then pays you a dividend. You pay dividend tax on that dividend. Only what's left goes towards the premium.
A higher-rate taxpayer paying a £50/month premium needs the company to earn roughly £83 in gross profit to fund it. That's £33 lost to tax every single month.
How the Tax Treatment Works
For the company (employer)
- Premiums are treated as a trading expense, deductible against Corporation Tax.
- No Employer National Insurance is due on the premiums.
- HMRC treats the premium as a business cost in the same way as a group death-in-service scheme.
For the director (employee)
- No Benefit in Kind (BIK) charge. You pay zero personal tax on the premiums.
- The payout sits outside your pension Lump Sum Allowance (the old Lifetime Allowance was abolished from April 2024).
- Proceeds are paid into a discretionary trust, keeping them out of your estate for Inheritance Tax.
Worked Example: Director Earning £80,000
Sarah is the sole director of her limited company. She earns £80,000 per year and wants £500,000 of level term life cover for 20 years. The monthly premium is £50.
If Sarah pays personally, she must extract money from her company via dividends. As a higher-rate taxpayer (35.75% dividend tax rate on income above the basic rate band), the cost stacks up quickly.
| Personal Policy | Relevant Life Policy | |
|---|---|---|
| Monthly premium | £50 | £50 |
| Annual premium | £600 | £600 |
| Corp Tax on profit to fund it (25%) | £311 | £0 (deductible) |
| Dividend tax at 35.75% | £334 | £0 (no BIK) |
| Total company profit needed | £1,245 | £600 |
| Annual saving | ||
| Saving per year with RLP | £645 | |
Over a 20-year policy term, that's £12,900 saved. The actual premium is the same. The saving comes entirely from avoiding Corporation Tax and dividend tax.
Figures use 2026/27 rates. Corp Tax 25%, higher-rate dividend tax 35.75%. Dividend allowance ignored for simplicity.
Cost Comparison by Tax Band
The saving depends on your personal tax band because that determines how much dividend tax you pay when extracting money to fund a personal policy. Here's the total cost to fund a £600/year premium:
| Tax Band | Dividend Tax Rate | Personal Policy Cost | RLP Cost | Annual Saving |
|---|---|---|---|---|
| Basic rate | 10.75% | £896 | £600 | £296 |
| Higher rate | 35.75% | £1,245 | £600 | £645 |
| Additional rate | 39.35% | £1,186 | £600 | £586 |
Personal policy cost = gross profit needed after Corp Tax (25%) and dividend tax to fund a £600 annual premium.
Eligibility Rules
Not everyone qualifies. HMRC has specific conditions:
- The employee must be a UK resident, or a non-UK resident with UK earnings taxed under PAYE.
- The employer must be a UK limited company, LLP, or other body carrying on a trade.
- The policy can only cover death (and optionally terminal or critical illness). It cannot have any investment or savings element.
- Cover must be written into a discretionary trust. If it's written as a personal policy, the tax treatment fails.
- The employee must be under 75 when the policy starts.
Sole traders and partners in traditional partnerships cannot use Relevant Life Policies. There is no employer-employee relationship to support the arrangement. If you're a sole trader, consider an LLP or limited company structure first.
Corporation Tax Deduction
HMRC's guidance (BIM45525) confirms that premiums on a Relevant Life Policy are deductible as a trading expense, provided the policy satisfies the conditions in Section 393B of ITTOIA 2005. The premium must be "wholly and exclusively" for the purposes of the trade.
In practice, HMRC rarely challenges RLP premiums where cover is within a reasonable multiple of salary. Premiums for a director earning £80,000 with 10x cover (£800,000 sum assured) would be well within normal limits.
If your company has fewer than 250 employees, you can usually deduct the premiums as they're paid. The timing matches when the cash leaves the company.
Edge Cases and Pitfalls
- Multiple directors in one company: Each director can have their own RLP. The premiums are deductible separately. There's no issue with one director having more cover than another, provided each policy is reasonable relative to that individual's salary.
- Director with no salary: If you only take dividends and have no PAYE salary, some insurers will decline the application. A small PAYE salary (even £12,570) is usually enough to satisfy underwriting.
- Existing personal life insurance: You can keep your personal policy running alongside an RLP. They are separate contracts. Some people use an RLP for the main cover and keep a small personal policy for mortgage protection.
- Company in its first year: New companies can take out an RLP immediately. There is no minimum trading period. The premium is still deductible in year one.
- IR35 contractors: If you operate through a Personal Service Company and are caught by IR35, your RLP premiums are still deductible. The IR35 rules apply to the deemed employment payment calculation, not to genuine business expenses like insurance premiums.
- Critical illness add-on: Many RLP providers offer critical illness cover as an optional extra. The same tax treatment applies. The premium for the critical illness element is also deductible, and there is no BIK on that component either.
Common Questions
Who is eligible for a Relevant Life Policy?
Any employee of a UK limited company, including directors. You need to be on the payroll (PAYE) and the company must be paying your salary. Sole traders and partners in a partnership cannot take out a Relevant Life Policy because there is no employer-employee relationship. The employee must be under age 75 at the time the policy starts.
Is the payout taxable when someone dies?
No. The policy is written into a discretionary trust from the outset, so the payout does not form part of the deceased's estate for Inheritance Tax purposes. The trustees decide who receives the money, though the policyholder can leave a letter of wishes. The payout is also free of Income Tax and Capital Gains Tax.
How is a Relevant Life Policy different from Key Person Insurance?
Key Person Insurance pays out to the company to cover financial losses when a key employee dies or becomes critically ill. The company is the beneficiary. A Relevant Life Policy pays out to the employee's family through a trust. They serve different purposes: Key Person protects the business, Relevant Life protects the employee's dependants.
Is there a maximum amount of cover I can get?
There is no fixed statutory limit, but HMRC expects the cover to be 'reasonable'. Most insurers cap it at around 15 to 20 times salary. Cover above that level may trigger a Benefit in Kind charge because HMRC could argue the premium exceeds what is needed for death-in-service provision. Stick to a multiple that matches what a large employer would provide through a group scheme and you should be fine.
How to Set One Up
- Speak to a life insurance broker who handles RLPs. Most high street comparison sites don't list them.
- The broker will get quotes from providers like Legal & General, Aviva, AIG, or Zurich. Premiums are similar to personal policies.
- The policy is set up in the company's name with a discretionary trust deed (the broker handles this).
- Your company pays the premiums by direct debit. Record them as a business expense in your accounts.
- No P11D reporting is needed. No Benefit in Kind entry. Just keep the policy documents on file.