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Relevant Life Cover
What is a Relevant Life Policy?
A Relevant Life Policy is an employer-funded life insurance plan designed to provide “death in service” benefits to an employee or company director. The premiums are paid by the business and are generally tax-deductible if they meet the “wholly and exclusively for business purposes” test. Importantly, there is usually no benefit-in-kind charge for the employee.
Policies are normally written into a trust, ensuring that any lump-sum payout goes directly to the employee’s chosen beneficiaries—typically family members—rather than the business. This makes Relevant Life Policies particularly attractive for small and medium-sized companies that don’t operate a group life scheme.
What Does It Offer
A Relevant Life Insurance Policy allows a company to fund personal life cover for an employee or director, with the employer acting as the policyholder. HMRC recognises these policies when they meet specific criteria similar to Excepted Group Life Policies, including restrictions on who can benefit, what benefits are permitted, and age limits. In essence, the policy pays a lump sum if the insured person dies (or is diagnosed with a terminal illness, where applicable) during the term. The company pays the premiums, which are typically deductible if they satisfy HMRC’s “wholly and exclusively” rule. When properly arranged, the employee does not incur a taxable benefit, under section 307 of the Income Tax (Earnings and Pensions) Act (ITEPA).
Most policies are held in a discretionary trust, ensuring that proceeds are paid quickly to beneficiaries and remain outside the estate for inheritance tax purposes. HMRC rules require that benefits can only go to individuals or charities, not the employer—helping to align with both trust and inheritance tax regulations.
To qualify, the policy must only provide permitted benefits. HMRC stipulates that:
- It must have no surrender value.
- It may only pay out on death or terminal illness (within limits).
- The policyholder must be under age 75.
- Beneficiaries must be individuals or charities.
For businesses looking for cover that pays the company rather than family members would require Key Person Cover.
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