The pros and cons of a relevant life policy both grow out of how it is built. On the plus side, the company pays and the providers say the premiums and the payout are normally treated well for tax; on the minus side, the cover is narrow, has to be arranged so the money reaches individuals (in practice through a trust) and is tied to one employee’s job. Neither column is weighed for you here.

Where a particular director or employee falls on each point depends on their status and pay, and an FCA-authorised broker can work that out on a call-back; you request one, free, through the form on this page.

What providers and HMRC list as the advantages

The main one is tax. Royal London’s guidance for advisers (published 20 May 2026) says premiums paid by the employer “will normally be tax deductible for the employer and not assessable on the employee”. Legal & General’s technical guide (June 2026) adds that a payout from the life or terminal illness cover “should be free from UK Income Tax, National Insurance and Capital Gains Tax”. How each of those taxes works is set out in relevant life insurance tax treatment.

The second is fit. Legal & General describes the plan as most suited to an employer who does not have enough employees to offer a group scheme, or is unwilling to, but wants to cover a few employees or “perhaps only one individual”. What relevant life insurance is explains the set-up.

The providers qualify the tax advantage. Legal & General says premiums should be allowable expenses for the employer if they pass HMRC’s wholly-and-exclusively test, and that the employer should be comfortable the premium is a reasonable employee benefit. Royal London says its trading-expense treatment “could be challenged by HMRC”. Aviva’s key features (January 2026) caution that today’s tax position may not hold in every case or for the full term.

How far the cover goes beyond death and terminal illness

Legal & General’s plan is designed to pay a lump sum on the employee’s death or a diagnosis of terminal illness, meaning life expectancy of less than 12 months. Royal London states its view more bluntly: “It can only provide life cover or terminal illness benefit. No disability or critical illness benefits are allowed.” On a plan built that way, a serious illness that is not terminal does not lead to a payout.

The edges are less tidy. HMRC’s Employment Income Manual (EIM15045, 28 July 2020) describes a third kind of relevant life policy, one that adds a benefit such as one for the employee’s ill-health or disablement during service. That benefit must have the character of a retirement benefit, and HMRC adds: “The provision simply for compensating for the employee’s loss of health is not a retirement benefit and so cannot be an excluded benefit within a relevant life policy.” Benefits from such a combined policy “may be chargeable under another employment income provision”, depending on the circumstances.

Aviva offers a benefit of that retirement-linked kind. Its adviser-only suitability-letter template (AL98044, August 2026) describes employee significant illness cover that pays if the person covered is diagnosed with an illness meeting Aviva’s definition, survives for at least 10 days and the condition results in their retirement or anticipated retirement. Its adviser application form (AL55001, August 2026) says the benefit “is not a form of employee group insurance or sickness cover”. Aviva’s customer key features (January 2026) describe the cover as paying on death or terminal illness. Ordinary illness cover is bought separately: company critical illness policies and income protection for owner-directors are covered on their own pages.

Two more limits follow from its being pure protection. Aviva says the cover has no cash value apart from a valid claim, and Zurich’s key features list the lack of a cash-in value among the things to be aware of. Aviva will also stop the policy if a premium stays unpaid for more than 30 days.

To find out which of these benefits one insurer’s plan includes, put the question to the FCA-authorised broker who rings you after you fill in the form here.

The trust requirement as the law frames it

The legislation does not say “trust” as such. Condition A in ITTOIA 2005, section 482, requires the money to be paid to or for an individual or charity, or to a trustee who will secure that it reaches one, so there are two routes in the statute. The providers quoted here write the policy in trust, and Aviva says the employer must do so when it applies and must act as a trustee alongside the person covered.

For the employer that is an extra document and a decision about trustees and beneficiaries, all before cover starts. Zurich warns that taking a policy out of its trust “will result in extra tax charges for your business and for your employee”. The choices are covered in relevant life policies in trust.

What happens to the policy if the employee leaves

Relevant life cover is built around a job, so a departure changes it. Zurich says terminal illness cover ends sooner if the life assured is no longer employed by the employer paying the premiums, or if the policy is assigned to them. A new employer can take the policy and trust over, Zurich says, but only if it agrees to and there is no break in premiums. How the tax works when the policy leaves the trust is on the tax treatment page.

If the employee takes it over instead, Aviva says the terminal illness benefit is removed and the policy “will no longer qualify for some of the tax benefits associated with Relevant Life Insurance”. Legal & General’s guide says that when the employee leaves, its cover continues with no need for further medical evidence or underwriting so long as the premiums continue to be paid.

Who cannot have a relevant life policy

Legal & General, Aviva and Zurich say a sole trader as owner of their own business, an equity partner and a member of a limited liability partnership cannot be covered; Aviva’s reason is that they are not employees. Aviva points out that a sole trader or partnership may still employ people who are covered. Royal London tells advisers to check with the provider, as some do not cover sole traders or equity partners.

The cover cannot be used to protect the business itself. Royal London says the legislation bars payments to a limited company, so “using a relevant life plan for key person purposes wouldn’t be allowed”; key person insurance and relevant life cover compares the two.

The employee also has to be in the right place and at the right age. Legal & General requires a UK-resident employee of a UK-resident business, and Aviva requires the policy to end before the 75th birthday. For the insurers’ own limits, the maximum age for a relevant life policy has the detail. Pay caps the size of cover; see relevant life cover limits.

Weighing the two columns is for your business and its advisers, and a broker can talk the details through once you have used the form here; the call is free. The insurers that offer relevant life cover are compared separately.

Frequently asked questions

Can one relevant life policy cover several employees?

No. Legal & General describes its plan as a single life policy with the employee as the person covered, and Royal London calls these plans “single life”. An employer wanting to cover more than one person takes a separate policy for each.

Does a relevant life plan ever pay out a surrender value?

No. Royal London lists “There can’t be a surrender value” among the conditions for a relevant life plan. Zurich says it refunds premiums if the policy is cancelled within the first 30 days, but not after that.

Sources