Life insurance, the tax-efficient way.

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What is Relevant Life Insurance?

Relevant Life cover is a tax-efficient form of life insurance which employers take out on behalf of a single employee. Unlike a regular life protection policy, it is only available to businesses. This means Business X can take out the insurance for its employee Steve, but Steve cannot buy the insurance for himself.

If the employee covered by the policy is to sadly pass away, their family is supported with a lump sum payment.

The insurance was introduced as a means of offering small businesses a way of accessing cost-effective life cover. Companies who wish to cover multiple employees are better off choosing a Group Life scheme.

How does a Relevant Life plan work?

Once the employer identifies which worker they’d like to insure, they need to decide how much coverage they’d like to offer. Employers will usually offer coverage based on a multiple of the person’s salary.

For example, if the employee is earning £40,000 a year, the company may choose to offer 2x, 4x – or even up to 15x their salary. If you’ve opted to offer 2x the salary then the employee’s designated recipients, will stand to receive £80,000 as a tax-free lump sum should the employee pass away.

A business can take out Relevant Life Insurance in two ways:

  1. Go direct to the insurance provider’s sales team
  2. Employ the services of a health insurance broker

Many of the major insurance providers now offer Relevant Life Insurance, but terms will vary as will the premium (the price of the insurance policy). This makes it important to source a range of quotes and sift through the details of each policy on offer. Speaking to an independent expert is strongly advised for this reason…

A professional health insurance broker will have expertise across the whole employee benefits marketplace – and can explain policy terms in easy-to-follow language.

Once the Relevant Life policy has been purchased, the scheme is placed into a Trust – which means the employee’s loved-ones avoid a hefty tax bill in the event of a payout. (Once the money is placed into a trust the employee technically no longer owns the money if they die – so it’s not counted towards inheritance tax.)

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Why offer Relevant Life cover?

The businesses which stand to benefit most from Relevant Life Insurance are those wishing to cover a single person, which usually means small businesses.

It’s likely to be a cost-effective option if:

  • You have a small business but not enough employees to qualify for Group Life Insurance.
  • You’re a company director (but still technically an employee) wishing to offer coverage to a single person – or yourself

According to AIG’s figures, Relevant Life Insurance can save £40/month compared to a Personal Life Insurance policy. This is because:

  • The premium will usually count as a business expense, reducing a company’s corporation tax
  • National Insurance does not need to be paid by employee or employer on the premium

If life insurance is instead taken out as a personal plan, the individual will be paying for it from their net income, after tax and National Insurance has already been paid by employee and employer.

Relevant Life Insurance demonstrates that you genuinely care about your employee. Like any life insurance scheme it provides piece-of-mind that an individual’s loved-ones are financially supported should the worst happen.

How much does Relevant Life cover cost?

There are several factors which affect the premium.

From the employer’s side:

  • How much cover you wish to offer – will you offer two-times, four-times their salary, or more?
  • How long a time period it covers – cover can be provided up to retirement age.

From the individual’s side:

  • Age
  • Health status
  • Smoker/non-smoker
  • Family history
  • Lifestyle – do you/they perform risky activities in or out of the workplace?

Clearly, due to all these variables, the cost of taking out Relevant Life can vary markedly. For example, it can start from as little as £5.31/month for a young healthy person with minimal coverage.

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How do businesses find the best deal?

There are two general ways you can go about purchasing an insurance product

  1. Employ an insurance broker
  2. Go straight to the seller

It’s usually advised that you employ the services of an independent insurance broker, like Engage, because they can provide an insider’s perspective on how it works: from purchase to claim. Plus, a consultant like Engage will have your best interests at heart, unlike an insurance provider who will have a vested interest in promoting a deal which suits their commercial needs.

Benefits of using an insurance broker:

  • Independent advice (as long they are not tied to a small group of insurers)
  • Get superior deals than available to the general public
  • Save time and hassle of researching the market yourself
  • Safeguards the business from the persuasive sales pitch of a sales agent
  • Avoid investing in an inadequate policy
  • Get advice on the claims process

Benefits of going direct to the insurer:

  • Cuts out the middle-man
  • Buy the insurance quickly (assuming you’re not researching too deeply!)

Who are the main UK Relevant Life Insurance providers?

Many of the major insurance companies provide Relevant Life Insurance policies, including:

Each will offer different price points and features, such as funeral services, online GP services, counselling support and more.

Frequently Asked Questions

Are Relevant Life Policies a benefit in kind?

It certainly shouldn’t be. Assuming the policy is implemented in the right way, it will not count as a P11D benefit. Consequently, there will be no additional tax to pay.

It certainly shouldn’t be. Assuming the policy is implemented in the right way, it will not count as a P11D benefit. Consequently, there will be no additional tax to pay.

What age can a relevant life policy run to?

A policy can last up until the employee is 75 years-old.

Can Relevant Life cover include critical illness?

Yes it can. Many insurance providers will give you an option to include coverage for serious illnesses. The definition of what constitutes a critical illness will vary from provider to provider.

It’s worth noting too, that most insurers will include cover for a terminal illness where the employee has a life expectancy of less than 12 months.

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