Private health and protection insurance expert and editor
In this guide about relevant life cover, we aim to provide you with a comprehensive understanding of what this type of insurance is, who it would suit and which providers are best. If you already know that you need relevant life cover, then click the button below and request a free comparison quote.
Relevant Life Cover, sometimes called Relevant Life Insurance, is a type of death-in-service benefit that is set up and paid for by a business and is a tax-efficient way of providing life insurance to company directors or single employees.
Should the individual die while insured, the policy will pay out a tax-free lump sum death benefit to their loved ones.
Relevant Life Cover is a cost-effective way to provide a small number of staff an additional perk, rather than setting up a sometimes expensive group scheme. Relevant Life Cover can also be helpful for high earning directors and employees who have made use of their pension lifetime allowance, as a traditional scheme would count towards their retirement savings.
Like a traditional life insurance policy, an individual is assessed by how much cover they require, their age, health and lifestyle. Assuming the policy is for a director, the amount of cover requested will be determined by their mortgage costs, salary and other things such as their personal bills. Once assessed the business will be presented with the premium, rather than the individual paying for it.
Should the insured individual die while employed and insured by the company, the policy will pay out a tax-free lump sum to the person’s beneficiaries, typically their family.
Relevant Life Cover isn’t just for company directors though because it can be provided to employees as a useful benefit too.
Relevant Life Cover can either be for a set lump sum, known as “level”, or linked to inflation so that the payout reflects the cost of living at the point of claim. If the payout is linked to inflation, the premiums will be too, so the cost of the policy will also increase over time.
Relevant Life Cover is often used by businesses where a director is working through a limited company or by small companies that don’t have enough employees to qualify for Group Life Insurance.
If you’re a small business that can’t qualify for Group Life Insurance, Relevant Life Cover is a great benefit to give to your employees.
A relevant life cover policy is designed for:
While there are a variety of people that can benefit from Relevant Life Cover, some people can’t, those include:
On the whole, the people that benefit most from Relevant Life Cover are contractors. These days, most contractors have their own limited companies, but tend to be the only employee other than their spouse. They are too small for a group scheme but they can take advantage of Relevant Life Cover to benefit from the same tax-efficiencies as a death-in-service scheme.
As we’ve outlined in the previous sections of this guide, there are numerous benefits to both the business and the individual when taking out a Relevant Life Cover policy. In this section we list all of the benefits to both the business and the individual.
Employers that provide relevant life cover to their employees as a benefit, usually offer somewhere in the region of three to ten times the employee’s salary. This is just a guide though, and you would need to calculate what’s affordable to your business and how much you would like to invest into the scheme. If the policy is being taken out purely for the company directors, then they should look at their own liabilities, such as their mortgage debt, to come up with a suitable amount of cover.
Similarly to traditional life insurance, if you don’t have any debts, dependents or expenses to consider, you may not need a relevant life cover policy.
However, if you do have a family, and you’re the primary provider, it is a tax-efficient way to purchase life insurance.
Similarly to a life insurance policy, there are a number of factors which determine the cost of Relevant Life Cover. Some of these are:
To give you a better idea of the cost of Relevant Life Cover, we’ve compared the market for fit and healthy 30, 40 and 50 year-olds, looking for £200,000 of cover. The comparison quotes assume that the individuals are in good health and are non-smokers.
£8.24 per month*
£16.48 per month*
£28.58 per month*
*Prices are true as of the 26/07/20 but should only be used as a guide.
Where Relevant Life Cover is being offered in place of Death In Service benefit for a single employee (or director), one of the requirements to qualify for the tax efficiencies is that it does not include Critical Illness Cover.
Many company directors that take out a Relevant Life Policy, will actually take out Executive Income Protection instead of a Critical Illness Policy. Executive Income Protection provides not only a greater level of cover for their income, it can also be paid for by the business without affecting the Relevant Life policy.
Death in service benefit is a form of benefit that's provided by an employer which pays out a tax-free lump sum of cash if you die while you're employed by the company in question. It usually provides a tax-free payout of between two and four times the individual's salary. In comparison, a relevant life cover policy may offer more cover and can be used alongside a death in service policy.
The following is our current understanding of HMRC’s tax rules relating to Relevant Life Cover. Before applying for cover we recommend that you speak with your accountant or local tax inspectorate to ensure you don’t fall foul of the rules.
No, it’s currently not, as long as it’s structured correctly, even though the company pays for the policy.
Different insurers will offer different rates and levels of cover, so it’s important to compare policies before you buy. We always recommend speaking to a life insurance broker to help you find the most suitable policy; not only will they be able to provide you with the best prices available, they’ll also make sure you get the right policy or combination of policies for you and your business.
The main difference between Relevant Life Cover and Keyman Insurance is that Keyman Insurance is designed to protect the business, whereas Relevant Life Cover is there to provide protection to an individual’s family members. With Keyman Insurance, if the individual dies then the proceeds will be paid out to the company, to be used to cover lost profits, recruitment fees and generally trying to maintain business as usual. Relevant Life Cover would pay a lump sum out to the loved ones of the individual and there would be no benefit to the business.
In short:
There are a number of providers of Relevant Life Cover in the UK which is why we always recommend speaking to an independent advisor about the best policy for your company and employees.
These are the UK’s leading providers of Relevant Life Cover:
If, after reading this article, you’ve decided that Relevant Life Cover isn’t the right fit for you, then we’d suggest reading another of our recent guides titled Best Life Insurance in the UK or get in touch and one of our advisors can help you find the right policy for you. Speaking to a life insurance broker can often save you time and money.
Disclaimer: This information is general and what is best for you will depend on your personal circumstances. Please speak with a financial adviser or do your own research before making a decision.
As the founder and editor of myTribe Insurance, the role of Chris Steele is to ensure that the information we provide is of the highest quality and value to those who read it.
