Relevant Life Policy: Tax-Efficient Life Cover for Directors
For a company director looking to arrange life assurance for their family, there are two broad routes: buy a personal life insurance policy from after-tax income, or use a relevant life policy (RLP) — where the company pays the premium and the director pays no income tax or National Insurance on the benefit.
The financial difference between the two routes can be substantial. For a higher-rate taxpayer director, the net cost of an RLP can be 40–50% lower than an equivalent personal policy. This guide explains how the structure works, the conditions it must satisfy, and why it is particularly valuable for owner-managers of small companies.
What Is a Relevant Life Policy?
A relevant life policy is a single-life term assurance policy effected by an employer (the company) on the life of an employee (including a director). On the death of the employee, the sum assured is paid to the employee's dependants via a discretionary trust.
The statutory basis is the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003, section 393B), which defines the conditions that a policy must satisfy to qualify as a relevant life policy. If those conditions are met, the premium paid by the employer is not a "benefit" to the employee for income tax or National Insurance purposes.
RLPs are sometimes described as "individual death in service" policies — they provide the same benefit as a group life/death-in-service scheme, but on an individual basis, without the need for a group of employees.
The Tax Efficiency: Numbers in Practice
Consider a director who wants £1 million of life assurance for their family. Suppose the annual premium is £2,000.
Personal policy route: The director would need to earn sufficient gross salary to pay £2,000 after income tax and NI. At the 45% additional rate plus NI, the gross income required would be approximately £3,800. The company would also pay employer's NI on that salary.
Relevant life policy route: The company pays the £2,000 premium directly. The director pays no income tax or NI on it. The company gets corporation tax relief on the premium as an allowable business expense. The effective net cost to the business — after corporation tax relief at 25% — is £1,500.
The relevant life policy route is approximately 60% cheaper on a net cost basis in this example. The exact saving depends on the director's marginal tax rate, the corporation tax rate, and whether the company pays employer's NI on additional salary.
For owner-managed companies where the director controls their own remuneration structure, the RLP is almost always the most tax-efficient mechanism for providing personal life cover.
The Conditions That Must Be Met
For a policy to qualify as a relevant life policy under ITEPA, it must satisfy all of the following:
1. Single life only: The policy must be on the life of a single individual (the employee). Joint life policies do not qualify.
2. Death benefit only: The policy must provide only a lump sum on death (including terminal illness, which is treated as death for policy purposes). There must be no investment element, no critical illness benefit, no income protection element, and no maturity value. It is a pure protection product.
3. Term must end by age 75: The policy must have a fixed end date. It cannot be a whole-of-life policy. The end date is typically linked to the employee's planned retirement age (maximum 75).
4. Benefit paid to a relevant benefit trust: On death, the lump sum must be paid to a discretionary trust (the "relevant life trust") — it cannot be paid to the employee or their estate directly. This is a mandatory structural requirement.
5. For the benefit of dependants: The trust beneficiaries must be the employee's dependants (spouse, civil partner, children, or other individuals financially dependent on the employee). The employer cannot benefit from the policy.
6. No assignment to the employee: The policy cannot be surrendered to, or assigned to, the employee during their lifetime.
If any of these conditions are not met, the policy loses its RLP status and the premium becomes a taxable benefit-in-kind.
The Relevant Life Trust
Because the sum assured must be paid to a trust on death (not to the estate), every RLP must be written in a relevant life trust from inception. The trust is established when the policy is taken out.
The trust is a discretionary trust. The company (the employer) is the settlor. The trustees are typically the company directors (in the case of a small company) or appointed independent trustees. The beneficiaries are the employee's dependants.
On death, the trustees exercise their discretion to pay the trust fund to the beneficiaries — typically the employee's spouse and children in the proportions the trustees consider appropriate, guided by any letter of wishes the employee has left.
The trust structure achieves two things simultaneously:
- The payout falls outside the employee's estate — no inheritance tax
- The payout does not require a Grant of Probate — funds are available quickly
The employee should leave a letter of wishes (addressed to the trustees) specifying how they would like the benefit distributed among the beneficiaries. The letter is not legally binding on the trustees but is a strong guide to their discretion. It should be updated following life events such as divorce, remarriage, or the birth of additional children.
Application to the Self-Employed Director
The relevant life policy is particularly powerful for directors of owner-managed companies — individuals who control the company and its remuneration strategy.
A sole director of a limited company can use an RLP in exactly the same way as an employee in a larger firm. The company (which the director controls) takes out the policy, pays the premiums, and writes the policy in trust for the director's family.
The conditions are the same: the policy must be term assurance only, must end by age 75, must be written in a relevant life trust.
The key practical steps for a director setting up an RLP:
- The company (as employer) applies for the policy
- The policy is written in a relevant life trust at the same time as the application
- The director completes the underwriting (health questionnaire, GP report if required)
- The company pays premiums directly — the director does not need to extract income to fund the policy
- The director provides a letter of wishes to the trustees specifying how proceeds should be distributed
Cover Limits: What Is "Reasonable"?
HMRC's guidance states that the level of cover under an RLP must be "reasonable" having regard to the employee's role. For most practical purposes, cover up to ten to fifteen times annual remuneration (salary plus bonus, or salary plus dividends for director shareholders) is accepted without challenge.
Where cover is sought at a higher multiple — for example, to cover a large mortgage or provide very substantial family protection — it is advisable to document the basis for the sum assured in writing, showing the specific financial needs the policy is intended to meet.
The absence of a statutory cap (unlike registered pension scheme death-in-service benefits) is a meaningful advantage: the RLP can provide higher cover levels than a registered scheme where pension lifetime allowance considerations apply, particularly for high earners who have already made substantial pension contributions.
RLP vs Group Life Scheme
For a business with multiple employees, the choice between individual RLPs and a group life (death-in-service) scheme depends on the size of the workforce and the level of individual customisation required.
Group life scheme: Lower per-person premium (pooled risk); mandatory for all employees above a threshold; free cover limit means no medical underwriting below a specified sum; subject to the registered pension scheme rules for the death-in-service benefit.
Relevant life policy: Individual underwriting for each person; allows different cover levels for different employees; not subject to registered pension scheme rules (advantageous for high earners near the pension lifetime allowance, which was technically abolished in 2024 but whose legacy provisions continue to affect some individuals); more flexible for small companies with few employees.
For a company with two or three directors and no other employees, individual RLPs are typically more appropriate and more cost-effective than setting up a formal group scheme.
The tax treatment of relevant life policies is subject to HMRC's interpretation and can change. The conditions described in this guide reflect the position under ITEPA 2003 as at 2026. Individual circumstances vary, and the appropriateness of an RLP depends on the specific structure of the business and the director's overall financial planning. Always seek advice from a qualified financial adviser and accountant before setting up a relevant life policy. Protection policies do not have a cash value and provide no return if the policy expires without a claim.
How Global Investments can help
Global Investments advises company directors and business owners on tax-efficient protection planning, including relevant life policies. We can quantify the net cost saving for your specific circumstances, coordinate the trust establishment, ensure the sum assured is set appropriately, and review the policy annually as your remuneration and protection needs change. Contact us for a business protection consultation.
This guide is for general information only and does not constitute financial or insurance advice. Policy terms, premium rates, and insurer eligibility criteria change — always verify current terms with a qualified independent adviser before taking out any policy.