Why Relevant Life Cover Should Be Part of Your Onboarding Process

Protecting What Matters, Tax-Efficiently

More and more people are forming limited companies, whether as contractors, directors, or co-owners.

During the initial set up stages, one critical step often gets overlooked: taking out Relevant Life Cover for yourself and key colleagues.

Read why it matters, and why setting it up should be integral to your early onboarding process.

 

What is Relevant Life Cover?

Relevant Life Cover is a type of individual death-in-service policy taken out through your limited company. It provides a tax-free lump sum to your beneficiaries if you die while employed by that company - yes, that includes directors.

 

Why It’s So Tax-Efficient

1. Corporation Tax Relief
Premiums are paid by your company and treated as allowable business expenses. This directly reduces your corporation tax liability.

2. No Benefit in Kind
The cover isn’t taxable as a benefit in kind, so neither you nor your company pay income tax or National Insurance on it.

3. Inheritance Tax Protection
Policies are written in trust, meaning the payout goes straight to beneficiaries and doesn't form part of your estate.

 

Who Can Benefit?

Relevant Life Cover is ideal for:

• Directors of limited companies (even sole directors)
• Contractors or business owners without access to group life schemes
• High-earning individuals looking to avoid compromising pension allowances

Note: It's not available for sole traders or partnerships unless there's an employer-employee relationship.

 

How Much Can You Cover?

You can typically insure up to 10–15 times your total annual income, this may include salary, dividends, and bonuses. l

You also have flexibility on cover length (up to age 75), and can choose between level or inflation-linked cover.

 

Why Incorporate It into Onboarding?

1. Peace of Mind from Day One
   New directors or employees have immediate protection in place.
2. Maximum Tax Efficiency
   Starting early ensures you enjoy the tax benefits from the outset.
3. Fast Setup
   All clients benefit from simple underwriting options that can begin cover before full medical checks are completed.
4. Stand Out as a Responsible Employer
   Even small companies can offer robust benefits that bigger firms can't match.

 

A Practical Example

Imagine a life policy costs your company £100/month. As a higher-rate taxpayer, the personal cost equivalent could be £165/month. But via Relevant Life Cover, there are no personal taxes or NI, and the company can deduct the full cost, making it a far smarter choice.

 

Things to Watch For

• Must be legally classed as an employee, not just a shareholder.
• Cover must cease before age 75.
• No cash-in value - there's no surrender value.
• You’ll need a trust structure to manage the payout.

 

Final Thoughts

If you're running a limited company, Relevant Life Cover isn't just sensible, it's essential. It protects your family, rewards your role, and keeps more money working for your business.

If you'd like help evaluating appropriate cover levels or setting it up properly, feel free to reach out.

Sources:

• ITContracting — Relevant Life cover: 8 key facts for limited company directors
• ContractEye — Relevant Life Insurance – tax efficient cover for limited company owners
• Legal & General — Relevant Life Plan overview