Relevant Life Plans
Life cover for directors, paid for by the company
A relevant life plan is an individual death in service policy. The company pays the premiums, and the payout goes to the employee's family through a trust.
Many company directors pay for life cover personally, out of income that has already been taxed, or have no cover at all because the business has no group scheme. A relevant life plan can be a more efficient way to provide the same protection.
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At a glance
Who pays
The employer, as a business cost
Who's covered
A director or employee of a limited company or LLP
Who receives
The employee's family or chosen beneficiaries, through a trust
What it covers
Death, and usually terminal illness, during the term. Not critical illness.
Authorised and regulated by the Financial Conduct Authority. FCA No. 1034779
Many directors pay for life cover personally, or have none
If you run your own company, your family probably relies on what you earn from it.
Small companies rarely have a group death in service scheme, and personal life cover is paid for from net income, after tax and National Insurance. A relevant life plan moves the cost of that cover to the company, while the benefit stays personal to you and your family.
It looks after your family, not the business, so it works alongside business protection rather than replacing it.
Personal life policy
- Paid from your own taxed income
- You own the policy
- You arrange any trust yourself
Relevant life plan
- Paid by the company
- The company owns the policy, with the benefit held in trust
- Premiums are not normally a taxable benefit for you, and may be an allowable business expense
What can happen if nothing is in place
Without suitable life cover, the impact falls on the people closest to you.
- Family income stopsIf you died, your family would lose the income the company pays you.
- Debts remainA mortgage, personal loans or guarantees may still need repaying.
- No death in service to fall back onMost small companies don't have group cover for their directors or staff.
- Delays for your familyA personal policy not written in trust may form part of your estate and wait for probate.
How a relevant life plan works
It's an individual policy, owned and paid for by the employer, with the benefit held in trust for the employee's family.
Check eligibility
The employer must be a limited company or LLP, and the person covered must be an employee or salaried director. Sole traders and partners in a traditional partnership can't use them, and there are restrictions for LLP members.
Decide the amount and term
Cover is based on what your family would need. Insurers set maximum limits linked to age and remuneration, and the plan must end by age 75.
Set up the trust
The policy is written into a trust, so the payout goes to your chosen beneficiaries, never to the company.
The company pays the premiums
Premiums are paid as a business cost. The plan must be for the employee's benefit, not to provide money to the company.
If a claim is made
The insurer pays the trustees, who pay your beneficiaries.
Who a relevant life plan is suitable for
It's most often used by directors of owner-managed companies.
- Directors of limited companies who draw a salary
- Key employees you want to reward with death in service cover
- Small companies without a group life scheme
- Directors paying for personal life cover from take-home pay
- Higher earners concerned about the lump sum and death benefit allowance
- LLPs providing cover for salaried employees
When it may not be the right answer
A relevant life plan covers death and terminal illness only, and the money goes to your family, not the business. It won't replace lost profit or fund a share purchase. If you pay yourself mostly through dividends, insurers differ in how they treat that income, so I'll check what's available before recommending anything.
Practical examples
These examples are illustrative only. The businesses and people are fictional, not clients, and any outcome would depend on underwriting, the policy terms and a valid claim.
- Illustrative example · Company director
Moving from personal to company-paid cover
A director pays for a personal life policy from his take-home pay.
The issue: every premium comes from income that has already been taxed.
With a relevant life plan: the company pays instead, subject to underwriting. He keeps his personal policy until the new plan has started.
- Illustrative example · Small company
Death in service without a group scheme
A company with a handful of employees wants to offer life cover to two senior staff.
The option: an individual relevant life plan for each, paid by the company.
The result: if the insurer accepts each application, every family has cover tailored to the individual.
- Illustrative example · Higher earner
Group cover and allowances
A senior employee's group death in service benefit is large.
The issue: benefits from a registered group scheme can count towards the lump sum and death benefit allowance.
The alternative: a relevant life plan isn't a registered pension scheme, so its benefit doesn't count towards that allowance.
Common questions
What is a relevant life plan?
It's a life insurance policy an employer takes out on an individual employee. It pays a lump sum, through a trust, to the employee's family if they die during the term. It's sometimes called individual death in service cover.
Who can have one?
Employees and salaried directors of UK limited companies and LLPs. Sole traders and partners in a traditional partnership can't, and there are restrictions for LLP members.
What are the tax advantages?
Under current rules, premiums are not normally treated as a taxable benefit for the employee, and are usually an allowable business expense for the company, provided the local inspector of taxes accepts they are wholly and exclusively for the purposes of the business. Paid through a trust, the benefit is normally outside the employee's estate for inheritance tax. Tax rules depend on your circumstances and can change.
Can critical illness cover be added?
No. Relevant life plans cover death, and most also pay out on diagnosis of a terminal illness. Critical illness cover would need to be arranged separately.
What happens if I leave the company?
Depending on the insurer, the plan may be transferred to a new employer or converted to a personal policy. I check this before recommending a provider.
Is it the same as key person protection?
No. Key person protection pays the business. A relevant life plan pays the employee's family.
How much cover can I have?
Insurers set limits based on age and remuneration. The amount should reflect what your family would actually need.
Relevant life plans pay out only on a valid claim and have no cash value. Trusts are not regulated by the Financial Conduct Authority. Tax treatment depends on individual circumstances and may change. Whether premiums qualify as an allowable business expense depends on the circumstances and applicable HMRC rules.
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