Tuesday 11 September 2012

As a company director, is your life insurance as tax efficient as it could be?

Relevant life policies are a type of life insurance for employers to provide employees with death benefits.

They can be very useful when there aren’t enough employees to justify a group scheme or, where an individual requires a greater level of benefit than the group scheme provides. As directors working day to day in a business are likely to qualify as employees, this can be a more tax efficient way for a company director to provide life assurance benefits for his/her dependants rather than paying for it personally or it being treated as a benefit in kind.


An example of relevant life insurance and its tax efficiency:

Mrs Anne Other is a shareholding director of A.Other Ltd, an engineering business, and currently has life insurance in place. She wishes to review her insurance as she and her partner are expecting their third child and they would like more cover.

Comparing the two plans that her financial adviser recommends, Anne doesn't hesitate to choose the Relevant Life plan. Below you can see the sums that made her decision easy.

The Relevant Life Plan is particularly beneficial for Anne because she’s the director and shareholder of her own business, so all the savings go to her. If she were to pay for her life cover personally it would cost her £1,569.65 every year. By buying her cover through the company using a Relevant Life Plan, it only costs £800 each year. That’s £769.65 less, which is a saving of almost 50%.

(This is a fictitious example, and also assumes that the Relevant Life plan qualifies as an allowable business expense, which it usually is)



What makes this plan so good for company directors?


  • You can effectively make a big saving on life cover compared with paying for it personally.
  • Premiums are normally classed as a business expense and so are likely to be an allowable deduction for Corporation Tax purposes.
  • Premiums and benefits do not count towards your annual or lifetime allowance – particularly important if you have a large pension fund or wish to maximise your contributions into your pension.
  • Keeping the plan in trust offers the potential to plan for Inheritance Tax if your estate is or is likely to be worth more than the current Inheritance Tax threshold.
  • Offers a cost-effective way to provide Death In Service benefits to your employees.

Any limitations or drawbacks?


Relevant Life Plans are not available for sole traders, equity partners of a partnership or equity members of a Limited Liability Partnership.

It’s a Single Life Policy, which means each plan covers one person – you, for example.

There’s no option to include joint cover, such as for you and your partner, in the same policy.

How do I take advantage of a Relevant Life plan?

Speak to your financial adviser who should be able to discuss the features in more detail.



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