What is relevant life insurance?
Relevant life insurance is a life insurance that can be arranged by an employer for employees and pays out a sum of money to the employee's beneficiary if they die whilst employed. Many small business owners would love to offer their employees or directors financial perks such as life insurance. Unfortunately, setting up a group scheme can be expensive, especially if staff numbers are low.
Relevant life cover is a form of death-in-service benefit that is set up and paid for by a company but pays out to a staff member’s or director’s beneficiaries on death or in the event that they are diagnosed with a terminal illness. It is typically used by businesses that aren’t big enough to establish a group life scheme but want to provide a perk for their directors and staff.
Although the pension lifetime allowance has now been abolished, relevant life insurance may still be attractive to high-earning directors and staff who wish to safeguard against the tax implications of exceeding the allowance if it were to be reinstated by a future government.
1 minute summary - What is relevant life insurance?
- Relevant life cover is a type of death-in-service benefit
- A relevant life insurance policy is set up and paid for by a company
- The policy pays out on death (or terminal illness diagnosis) and is paid to the beneficiaries of the deceased staff member or director whose life is insured
- The cost of relevant life premiums can be treated as a business expense, reducing corporation tax bill
- A useful way of attracting and retaining staff as part of a benefits package
- Speak to an independent relevant life insurance specialist* to receive specialist advice that is tailored to your business
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How does relevant life insurance work?
Much like a standard life insurance policy that you may buy as an individual, relevant life insurance provides cover for the insured person in case they were to die. If the insured person dies whilst insured, the insurance pays out a cash lump sum of money which is distributed according to the ‘expression of wish' completed by them.
Employees who are to be covered by the relevant life insurance policy will usually be required to complete an application form that asks about their age, smoker status, health and lifestyle. Based on these factors and the amount that the life insurance will pay out in the event of a claim the insurance company will price the life insurance amount that is requested. Similarly to a traditional life insurance policy, an individual is assessed based on how much cover is required, their health, age and lifestyle. The amount you request may be determined by your mortgage costs, salary and other elements such as your personal bills. This then generates a premium but rather than the individual paying for the policy, the business does. If the person covered dies while working for the company it pays out a lump sum, tax-free to their beneficiaries, which is typically their family members. Policies can be taken out for employees as a benefit as well as for business owners and directors themselves. The cover can be a useful employee perk but relevant life cover taxation is also pretty generous.
Relevant life plans can either be for a set amount, known as level, or be linked to inflation so the payout reflects the cost of living at the time it is made. This would also increase the premiums in line with inflation. Some policies can also incorporate guaranteed increase options such as to cover a larger mortgage or pay rise. It is not treated as a benefit in kind so those insured don’t have to pay any income tax, while the business can treat the premiums as an expense to reduce their corporation tax bill. Additionally, the policy is written in trust which makes the payout to beneficiaries free of inheritance tax. Providers will set various limits on levels of cover so to boost the insurance many use it alongside death-in-service policies.
Death-in-service cover usually provides a tax-free payout of between two and four times your salary if you pass away while working for the company. In contrast, a relevant life policy may offer more cover. These types of policies may not individually provide enough cover for all your loved one’s expenses such as a mortgage or childcare so it is often worth considering topping up with your own life insurance. Additionally, if you leave a company that was providing the death in service benefit you would lose this perk but it may be possible to take charge of your own relevant life cover and pay your own premiums. You could even take it with you to your new employer and ask them if they will pay for it as part of your remuneration negotiation.
What are the benefits of relevant life insurance?
Benefits for businesses
Relevant life cover is a tax-efficient alternative to group life assurance. A group life scheme often works out cheaper for larger groups and those businesses with just one or even no members of staff wouldn’t usually qualify. Instead, relevant life plans allow a company owner or director to still be able to cover themselves using their business rather than their own personal income, as well as providing the perk for employees. It also has the benefit of reducing the firm’s corporation tax bill as can be treated as an expense. More importantly, relevant life cover is a useful way of attracting and retaining staff as it shows you value their contribution and care for their wider family.
Benefits for employees
A relevant life policy is also useful for employees. It gives them life insurance without having to pay any premiums, although depending on the level of cover it may still be worth having their own additional policy. Relevant life cover may also benefit high earners as an alternative to joining a group life scheme. This is because group life schemes usually count towards the annual pension lifetime allowance, which was £1,073,100 until April 2024. The lifetime allowance was completely abolished on 6 April 2024 and replaced with Lump Sum & Death Benefit Allowance (LSDBA) which limits the total value of tax-free lump sums and death benefit lump sums that can be paid in respect of all your pensions to £1,073,100
In any case, relevant life insurance policyholders are unlikely to be disadvantaged as a result of this change. However, those looking to buy new relevant life insurance policies should speak with a business life insurance expert* to ensure that this type of life insurance is the most cost-effective solution to their needs.
How much relevant life insurance should you get?
Employers that offer death-in-service benefits to their employees via a company group life insurance scheme usually offer somewhere between three and ten times the employee's salary. You would need to work out what is right for your business and importantly, what is affordable. We provide some basic cost comparison quotes for relevant life insurance below, alternatively, you may wish to check out our article ‘How much does relevant life insurance cost?'
How much does relevant life insurance cost?
Much like any life insurance, the cost of relevant life cover will depend on the insured individual’s age, lifestyle, health and how much cover is provided. It is definitely worth shopping around, as providers will offer various levels of cover with different terms and conditions depending on the type of policy you want. We have provided some example quotes below which give the approximate premiums you would expect to pay for a healthy, non-smoking 25, 35 and 45 year old and provide insurance until they are 70 years old. This should only serve as a guide however and we would recommend that you always speak to an independent financial adviser or better still, an independent business life insurance specialist as they will be able to find the most suitable relevant life cover provider based on your own unique circumstances. At the foot of this article, I detail the independent insurance specialist I personally used for my business insurance needs.
Relevant Life Quote Comparison – 25 year old non smoker
| Amount of cover | Monthly Premium* | Insurer |
| £150,000 | £6.81 | Aviva |
| £250,000 | £9.61 | Legal & General |
| £350,000 | £12.00 | Legal & General |
*Price based on cover until age 70 and correct as of 20th May 2024
Relevant Life Quote Comparison – 35 year old non smoker
| Amount of cover | Monthly Premium* | Insurer |
| £150,000 | £10.01 | Vitality |
| £250,000 | £13.99 | Vitality |
| £350,000 | £18.46 | Vitality |
*Price based on cover until age 70 and correct as of 20th May 2024
Relevant Life Quote Comparison – 45 year old non smoker
| Amount of cover | Monthly Premium* | Insurer |
| £150,000 | £16.95 | Vitality |
| £250,000 | £28.71 | Legal & General |
| £350,000 | £39.75 | Scottish Widows |
*Price based on cover until age 70 and correct as of 20th May 2024
How to compare and buy relevant life insurance
Different insurance companies will offer a variety of rates and levels of cover as well as access to support services such as access to virtual doctors and counsellors, so it is important to compare relevant life insurance policies and costs. It is advisable to speak to a competent life insurance broker to find the most suitable policy (or combination of policies) for you and your business. Life insurance brokers who specialise in business insurance will be able to guide you around the tax benefits of particular types of business life insurance so it is worthwhile seeking out specialist guidance.
I have personally vetted the services of LifeSearch*, one of the UK's leading specialist insurance brokers, which recommended and put in place insurance policies to protect my business (MoneytotheMasses) and its employees. It has specialist advisers that deal with relevant life insurance. To arrange a free chat just fill in the form via the above link. There is no obligation on your part to take matters further. The firm has strong ethics but also enjoys preferential prices from insurance companies which means that it can guarantee to beat any relevant life quote.
If a link has an * beside it this means that it is an affiliated link. If you go via the link, Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. The following link can be used if you do not wish to help Money to the Masses and do not wish to qualify for the cashback referred to in the article – LifeSearch