Relevant Life Policy: A Director's Guide to Company-Funded Life Cover

For directors and employees who want life insurance funded by their company, a Relevant Life Policy (RLP) is one of the most tax-efficient structures available in the UK. The employer pays the premiums, deducts the cost against corporation tax, and the death benefit is paid outside the employee's estate — avoiding inheritance tax and probate delay.

This guide explains how RLPs work, who qualifies, how they compare to other forms of life cover, and the considerations for directors who work internationally.

What Is a Relevant Life Policy?

A Relevant Life Policy is a term life insurance policy taken out by an employer on the life of an employee. The key features are:

• The company is the policyholder and pays the premiums
• The policy is written in trust for the benefit of the employee's dependants
• The death benefit is paid to the trustees and distributed according to the trust deed
• The premium is treated as a corporation tax-deductible business expense
• The benefit is not treated as a benefit in kind for income tax or National Insurance purposes

The result is life cover that costs the company less than an equivalent personal premium — and the employee receives significantly more cover per pound of company expenditure than they would achieve by paying for personal life insurance out of their net income.

The Tax Efficiency in Practice

To understand the value of an RLP, compare the cost of funding the same life cover personally versus through a company.

Suppose a company director aged 45 wants £1 million of life cover over 20 years. A personal term insurance policy might cost £150 per month. If the director earns that £150 as a dividend, it is subject to corporation tax on company profits (currently 25% for companies with profits above £250,000) and dividend tax on extraction (up to 33.75%). The effective cost of funding a £150 personal premium from company profits could be £250–£300 per month of company earnings.

Under an RLP, the company pays £150 per month directly. The premium is deductible against corporation tax. There is no income tax or National Insurance for the employee. The company effectively receives 25% corporation tax relief. The same £1 million of life cover costs the company significantly less than funding it through the director's personal income.

The saving is greatest for companies paying the main corporation tax rate (25%) and directors who are higher or additional rate taxpayers.

Written in Trust — Why This Matters

An RLP must be written in trust to achieve its tax advantages. The trust structure achieves three things:

Inheritance tax efficiency. The death benefit does not form part of the deceased's estate. Without a trust, a life insurance payout goes into the estate and is potentially subject to 40% IHT on anything above the nil-rate band. With a properly structured RLP trust, the death benefit bypasses the estate entirely.

Speed of payment. Trust assets do not require a grant of probate before being distributed. The trustees can pay beneficiaries quickly — sometimes within weeks of the death being confirmed. Estate assets can take 12–18 months to distribute even in straightforward cases.

Control over who benefits. The trust deed names the potential beneficiaries (typically spouse, children, and other dependants) and the trustees decide how to distribute the proceeds based on the circumstances at the time of the claim. This is particularly valuable where family circumstances are complex.

The trust used for an RLP is typically a discretionary trust. The policyholder (the employer) transfers the policy into the trust at inception. The trustees are usually a combination of the employee and other individuals or a professional trustee.

RLP vs Death in Service

Many companies offer group life insurance as a death-in-service benefit — typically 3–4 times salary for all eligible employees. An RLP is often used alongside or instead of group life for senior employees and directors. The key differences are:

Sum assured. Group death-in-service schemes typically provide 4 times salary as a standard multiple. A standalone RLP can provide up to approximately 15 times total remuneration, subject to insurer acceptance. For a director earning £200,000, this could mean up to £3 million of cover.

Trust structure. Death-in-service is written in a group trust; an RLP is written in an individual discretionary trust that the employee has more control over.

Portability. If the employee leaves, group death-in-service cover ends immediately. An RLP can sometimes be converted or continued if the trust and policy terms allow, though this requires active management.

Underwriting. Small group schemes often avoid individual underwriting below the "free cover limit". An RLP requires full individual underwriting — which means the insurer assesses the employee's health, occupation, and lifestyle before offering terms.

Benefit in kind. A registered group death-in-service scheme historically interacted with the pensions lifetime allowance, though that allowance was abolished on 6 April 2024. An RLP sits outside the registered pension regime altogether and, correctly structured, is exempt from income tax as a benefit in kind.

For directors who want a higher sum assured with better IHT planning, an RLP is usually the better structure. For companies wanting a standard benefit for all employees, group death-in-service is simpler and cheaper per head.

Who Qualifies for an RLP?

The key eligibility requirement is an employer-employee relationship:

• Directors of limited companies qualify — even if they own 100% of the shares, they are employees of the company in the tax sense
• Salaried employees qualify at any level
• Sole traders cannot have an RLP on their own lives — there is no employer
• LLP members (partners) are in a complex position: those taxed as employees may qualify; those taxed as self-employed often cannot
• Company secretaries and non-executive directors may qualify subject to insurer acceptance

The employee must be a genuine UK or internationally employed individual with a verifiable salary or remuneration package. The policy must relate to an actual employment relationship, not a contrived arrangement purely for tax purposes.

Maximum Sum Assured

HMRC guidance on RLPs references a cap based on a multiple of remuneration — broadly aligned with the concept of insurable interest. Most insurers apply an approximate cap of 15 times total remuneration for standalone RLPs.

"Total remuneration" typically includes: base salary, regular bonuses (averaging prior years), P11D benefits, and employer pension contributions. It does not include dividends paid in the director's personal capacity (because dividends are not remuneration from the company).

This 15× cap means a director with total remuneration of £150,000 per year could access up to approximately £2.25 million of life cover through an RLP — considerably more than available through a standard death-in-service scheme.

The International Director

A growing number of directors of UK companies are non-UK resident — they may be based in Dubai, Cyprus, Singapore, or elsewhere while maintaining directorial roles in UK companies. The question arises: can the UK company still provide an RLP?

In most cases, yes. The RLP is a UK insurance contract, regulated by the FCA and written by a UK-authorised insurer. The fact that the insured life is based abroad does not prevent the policy from being issued, though:

• The medical examination may need to be conducted in the director's country of residence with a qualified doctor recognised by the UK insurer
• The insurer will assess the director under UK policy terms, which may include territorial exclusions for certain high-risk locations
• The tax treatment in the director's country of residence is a separate question — the corporation tax deduction is a UK benefit for the company; the local tax treatment for the director depends on local law

Directors who are internationally mobile should take specific advice on both the UK tax position and the local tax treatment in their country of residence before the policy is established.

Practical Structuring Points

The trust deed must be established correctly. The policy and trust should be set up simultaneously. The trust deed names the potential beneficiaries, the trustees, and the powers of the trustees. Using a professionally drafted trust deed (rather than an insurer's standard form) is advisable for larger sums.

Premium payment must be correctly recorded. The company's accountant should record the premium as a business expense, with the appropriate treatment confirmed with the company's auditors. The deduction is available when the conditions are met — it is not automatic.

The policy should be reviewed regularly. If the director's remuneration changes significantly, the sum assured should be reviewed against the maximum multiple. If the director's health changes, the insurer should be notified of anything material (depending on the policy's duty of disclosure terms).

Termination of employment. If the director leaves the company, the company will typically stop paying premiums. The trustees should be notified. Depending on the policy terms and trust deed, the director may be able to arrange continuation on a personal basis — but this requires advance planning.

Common Mistakes to Avoid

Using a personal trust deed rather than a proper employer trust deed designed for RLPs — the trust structure must comply with HMRC requirements to preserve the tax treatment.

Not reviewing the sum assured against the 15× remuneration cap — if the company later increases the sum assured without checking the cap, the policy could partially lose its exempt treatment.

Failing to register the trust with HMRC's Trust Registration Service — all UK trusts, including RLP trusts, must be registered; penalties apply for non-compliance.

Treating the premium as a P11D benefit — correctly structured RLPs are not benefits in kind; recording them as such creates unnecessary tax complications.

How Global Investments Can Help

Global Investments works with directors and business owners to structure protection planning that is tax-efficient, aligned with long-term estate planning, and appropriate for international circumstances. If you are a director of a UK company — whether based in the UK or internationally — our advisers can assess whether a Relevant Life Policy is right for your situation, co-ordinate the trust structure with your legal and tax advisers, and source competitive terms from the UK market.

We do not work on commission and we do not recommend products we would not use ourselves. Protection planning of this kind, done properly, is one of the most cost-effective financial decisions a company director can make. Contact Global Investments to begin a review.

Capital values and tax legislation can change. The value of any tax reliefs depends on individual circumstances. This guide is for information only and does not constitute financial, tax, or legal advice. Always seek regulated professional advice before implementing any protection or tax planning.