A common misconception around life policies is that they’re really expensive, but they’re more affordable and beneficial than you may think.


Relevant life insurance is a type of cover that provides a lump sum to beneficiaries in the event of an employee’s death. 

It’s put in place to help your employee’s family or nominated beneficiaries so they don’t have to worry about money during such a difficult time.

Like any life insurance, premiums are based on the employee's lifestyle:

  • Age

  • Do they smoke

  • Are they active etc

It can also factor in their financial circumstances:

  •  Annual salary

  • Any outstanding debts, like a mortgage

The sum assured can be pre-agreed or it can be linked to the annual rate of inflation, so claims take the cost of living as a factor.

Those who can be covered are usually:

  • Company directors, or someone senior who makes important decisions and is responsible for running the company

  • Any employee  can be insured as a benefit of employment

Despite all these benefits, many businesses won’t invest in relevant life cover because they see it as an expense on the balance sheet.

But, because of the tax rules around premiums and proceeds from policies, relevant life cover can actually be a lot more cost effective than you might think.

Let’s see why.

What are the tax rules for your relevant life policy?

The premiums on Relevant Life Cover are classed as an allowable expense, which means you can offset their cost on your tax return, as long as they’re paid in full.

Cover isn’t subject to corporation tax either.

That’s because premiums paid into the insurance policy are treated as a business expense.

Neither the employer or the employee has to pay tax on this type of cover, and because of this, they won’t get assessed as a benefit of kind.

Do you pay tax on the premiums?

Because Relevant Life Cover doesn’t count towards an employee’s salary, they won’t have to pay income tax on monthly premiums.

Relevant Life Policies are therefore very attractive to employees and they’re more likely to stay in a business if it has this cover type in place for them. 

As an employer, this means you won’t have to pay towards the national insurance contributions either.

Do you pay tax on a relevant life policy pay out?

The short answer is no.

The Relevant Life Policy isn’t classed as a benefit in kind for the employee.

Plus, because it’s written into a trust, the sum the beneficiary receives will be tax free.

Due to how cost-effective it is for both the employer and employee, Relevant Life Cover is attractive to businesses of all sizes.

Are there any tax benefits for the employee?

The main benefits for your employee if you set up a Relevant Life Policy for them is that the premiums don’t count towards their salary, so they won’t have to pay any National Insurance or income tax on them.

Relevant Life Cover also doesn’t count as a benefit in kind, so isn’t subject to any additional tax expenses either.

How about inheritance tax and your relevant life policy

Relevant Life Policies are set up as a trust and are held until payments are needed.

Because of this, the policy don’t  form any part of an employee’s estate.

This means Relevant Life Insurance doesn’t count towards inheritance tax.

It’s possible this could change on each 10 year anniversary of the creation of the trust, but this is unlikely.

How to set up your relevant life policy

Setting up a relevant life policy is simple. 

Firstly, the employee must undergo an initial assessment to establish information about them, including health, age and their lifestyle.

These factors, combined with financial aspects like salary and living costs, determine the amount of cover the employee can get.

It’s vital that any details provided are correct and updated if and when anything changes, to make sure the policy is accurate.

If any information is wrong it could risk any payouts being withheld.

Relevant Life Cover should be held in a trust so it won’t be subject to income tax or national insurance.

Whoever sets up the cover in your company  is responsible for holding and paying into the account, with the agreement that the policy will be paid out to the employee's chosen beneficiaries in the policy.

As an employer you’re then responsible for paying premiums for a lifetime plan.

Protect your business and reassure employees with a relevant life policy

As an employer it’s great for you to have a relevant life policy in place because it’s a tax deductible business expense, so isn’t as expensive as other insurance forms. 

It’s not just for large companies either. 

Small businesses tend to take out relevant life policies because they’re a cost effective way of providing cover for employees without breaking the bank.

Small businesses also look at relevant life policies as an alternative to a group life scheme as a less admin intensive alternative.

Because it’s as good for employees as it is for employers, it’s an attractive benefit to add to contracts which will bring in and retain employees. 

There are even more benefits for the employee.

Having a relevant life policy means they can access insurance without having to pay premiums through their salary. 

For high earners it means they won’t face the same level of tax compared to if they joined a group life scheme, making it a more tax efficient option. 

It also gives the families of employers peace of mind. 

With a life policy in place, they know there’ll be one less thing to worry about if something happens. 

If you want to know more about relevant life insurance and how it can provide cover for your employees, get in touch now.