Relevant life insurance is a life policy that a company takes out and pays for on one employee or director, written in trust so that any payout goes to the employee’s family or other chosen beneficiaries rather than to the business. Royal London’s adviser guidance calls these plans “single life, stand-alone death-in-service plans”, which is how a small company can offer something like a large employer’s group cover.

Curious how this would work for your company? An FCA-authorised broker can tell you how insurers tend to view a company like yours; you can reach one via the form on this page. It costs nothing. This page is general information, read in October 2026.

What is relevant life insurance, and how does it work?

Legal & General’s Technical Guide to the Relevant Life Plan (W13965, June 2026), written for advisers, says its plan is designed “to pay a lump sum if the employee dies or is diagnosed with a terminal illness (life expectancy less than 12 months) whilst they are employed by their current employer, while the plan is in place.”

So there are three parties: the employer, who applies and pays; the employee, whose life is covered; and the trustees, who receive the money if a claim is paid. Aviva’s key features (EDCO1771, January 2026) say “The sum assured will be paid to the trustees who must then follow the terms of the trust to distribute the monies to the chosen beneficiaries.” Trusts in general are explained in our guide to life insurance trusts.

How is a relevant life policy set up through a company?

Legal & General’s guide says its plan is set up as “a single life policy”, with the employer paying the premiums, “written in trust from outset, using our Relevant Life Plan Discretionary Trust”, and “the plan ends by the time the employee is 75” (start ages and terms are on the maximum age for a relevant life policy). Aviva asks for its trust at the same moment: “You must do this at the same time as you apply for the cover.” The two differ on trustees. Aviva says “You must be a trustee, together with the person covered”; Legal & General says “The employer is automatically appointed as a trustee but the employee is not.”

Without the trust, Aviva warns, the policy “may not meet HMRC’s definition of relevant life insurance for taxation purposes”. Zurich’s key features (PW720504007, August 2025, published on its site for intermediaries) call the trust “a HM Revenue and Customs (HMRC) condition to claim tax relief”.

Legal & General’s guide adds that “the employer should also be comfortable that the level of premium being paid is a reasonable employee benefit in the circumstances, as otherwise the plan may not be as tax efficient as it could be.”

If the employee leaves, Legal & General says “the cover will continue and there will be no need for further medical evidence or underwriting so long as the premiums continue to be paid.” Aviva offers two routes: a new employer can ask to take the cover over, or the employee can continue it in their own name, in which case “The employee will become responsible for the payment of premiums. The terminal illness benefit will be removed from the policy and no longer be available.” Aviva adds that the policy then “will no longer qualify for some of the tax benefits associated with Relevant Life Insurance.”

What makes a policy a relevant life policy in HMRC’s eyes?

HMRC’s Employment Income Manual (page dated 28 July 2020) describes 3 types of relevant life policy. The one for one person is “A policy which provides for the payment of benefits on the death of a single individual” that meets these conditions:

  • “a capital sum is payable on the death in any circumstances of the insured individual who dies under a specified age that does not exceed age 75”
  • “there is no surrender value, and the only sums or benefits are those permitted”
  • “the beneficiaries are restricted to individuals and charities”
  • “tax avoidance is not a main purpose”

The conditions come from sections 481 and 482 of the Income Tax (Trading and Other Income) Act 2005, which require payments to go to “an individual or charity beneficially entitled to them” or to a trustee who will secure that they do. HMRC’s Insurance Policyholder Taxation Manual (29 April 2022) says the tests “apply continuously, not just at the inception of the policy”, and that “There is no formal approval process for approving excepted group life policies”: insurers, policyholders and their advisers satisfy themselves.

The same manual explains why this is not business protection: “a policy held by a company on the lives of its employees where the company is the beneficiary of the death benefits would not meet this condition”, and Legal & General says its plan “should not be used for Business Protection purposes”. Cover that pays the company is in what key person insurance is for, cover that lets surviving owners buy a share is in shareholder protection insurance, and cover for a company loan is in business loan protection insurance.

How is relevant life insurance taxed?

This is what HMRC and the insurers say, not tax advice; tax rules can change, and a company’s accountant confirms how they apply.

Premiums. HMRC’s Employment Income Manual says “The payment of premiums to fund the policy does not attract a charge under the EFRBS provisions, but may be taxable under other provisions. A benefit in kind charge may be exempted by section 307, depending on the circumstances”. Legal & General says the premiums “are not usually treated as employee income” and are not usually a P11D benefit. For the company, it hedges: “As long as the premiums are being paid ‘wholly and exclusively for the purposes of the business’, they should be allowable expenses for the employer”. Royal London adds that HMRC could challenge this, and “we can’t say for sure that every case will be an allowable business expense.”

Pension allowances. Royal London’s guidance (20 May 2026) makes two separate points. On the payout: “Unlike lump sums paid under a registered pension scheme, relevant life plan benefits don’t form part of an employee’s lump sum and death benefit allowance for pensions.” On the premiums: “Premiums don’t count as part of the annual allowance for pension tax purposes”.

The payout. Aviva says “Under current legislation and HMRC practice, benefit(s) payable under this cover are normally free from Income Tax and Capital Gains Tax for UK residents.” Royal London says “As the plan is held in a discretionary trust, it doesn’t belong to the employee, so it won’t form part of their estate for inheritance tax purposes”, but “the trust itself can be subject to periodic and exit charges.” When any life payout is taxed is covered in is a life insurance payout taxable?

Can company directors, owners and the self-employed use relevant life insurance?

Directors can, where they are employees of the company. Aviva says “An employee can include a single director of a limited company on PAYE.” Legal & General says a UK-resident employee “will usually include company directors (on PAYE) and salaried partners”, and Zurich says “Company directors (including shareholding directors) and company officers can also be treated as ‘employees’ for this type of policy.”

The self-employed are a different matter. Legal & General says “Members of a Limited Liability Partnership (LLP) and sole traders (as owners of their own business) are not eligible to be covered under a Relevant Life Plan.” Aviva says “a sole trader (in their capacity as business owner), an equity partner in a partnership or a member of a limited liability partnership aren’t employees so can’t be covered”, and Zurich’s key features list the same three. Aviva adds that a sole trader or partnership can still be the employer for its own employees. A sole trader or partner can read about key person cover for sole traders and partners, a different product.

Royal London’s guidance says the plans are for small companies without enough people for a group scheme, employees topping up a group scheme, and “High earners who don’t want their group death-in-service lump sum benefits tested against their lump sum and death benefit allowance as part of their pension benefits.” For comparison, the NHS scheme is in NHS death in service benefit, and the wider question in do you need life insurance if you have death in service benefit.

Whether your own company could use it, for how much and with which insurer, turns on underwriting and its tax position. An FCA-authorised broker can go through that with you once you have made a request here; the introduction carries no fee.

Frequently asked questions

Who owns a relevant life policy?

Legal & General’s guide says “Premiums are paid, and the policy is owned, by the employer”, but that once it is in trust the trustees become the legal owners of the trust fund. Royal London puts it as “the company doesn’t own the plan”.

Can it include critical illness or income protection?

HMRC’s Insurance Policyholder Taxation Manual says “The policy must not provide for payments on any other contingency such as on the disability of an insured individual.” Royal London puts it as “It can only provide life cover or terminal illness benefit. No disability or critical illness benefits are allowed.” Company-paid illness cover is a separate policy: see critical illness cover for business and income protection for business owners.

To have a broker look at relevant life cover for your company, complete the form here; there is no charge to you. Other company cover is in the business cover guides.

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