Relevant life insurance: life cover your company pays for

It's a life insurance policy an employer takes out and pays for on one employee. If the employee dies during the term, the money goes to individuals or a charity, such as their family.

The name comes from UK tax rules. HMRC defines a single-person relevant life policy by the conditions for an excepted group life policy, applied to that one person's life:

• It pays a capital sum if the person dies in any circumstances before a set age of no more than 75.
• It has no surrender value (nothing to cash in), apart from a share of unused premiums if it's cancelled, and it pays only the benefits the rules allow.
• The beneficiaries are restricted to individuals and charities.
• Tax avoidance isn't the main purpose, or one of the main purposes.

There's no formal HMRC approval. Insurers, employers and their advisers have to satisfy themselves that a policy qualifies, and it has to keep meeting the rules from the day it starts.

Yes. Company directors can count as employees, including shareholding directors at Zurich and directors on PAYE at Legal & General. Zurich also includes company officers, and Legal & General gives salaried partners as another example.

The employer doesn't have to be a limited company. At Zurich, it can also be a partnership, a limited liability partnership (LLP), a charity or a sole trader with employees.

A business owner who isn't an employee can't insure their own life this way. Aviva, Legal & General and Zurich all exclude:

• sole traders on their own lives
• equity partners in a partnership
• equity members of an LLP (Zurich excludes any member of an LLP)

Aviva says the policy can still cover the employees of a sole trader, partnership or LLP. If you work for yourself without a company, see life insurance for the self-employed.

HMRC says relevant life premiums and payouts aren't taxed under the rules for employer-financed retirement benefits schemes. A benefit in kind charge on the premiums may be exempt, depending on the circumstances, and Zurich says HMRC usually views the premiums as an allowable business expense if they meet the legislative criteria.

How the rules apply depends on your business, and Legal & General and Zurich say the tax position isn't guaranteed. This is a summary of the rules, not tax advice. An accountant can check your position.

Do you pay tax on the premiums?

Under section 307 of the Income Tax (Earnings and Pensions) Act 2003, no income tax arises under the general charge on taxable benefits when an employer provides for an employee's retirement or death benefit. A death benefit includes a lump sum paid to another individual or a charity when the employee dies.

Can the company claim tax relief?

Under section 54 of the Corporation Tax Act 2009, a company can deduct only expenses incurred wholly and exclusively for the purposes of its trade. If an expense has more than one purpose, an identifiable part or proportion spent wholly and exclusively for the trade can still be deducted.

If a director's or relative's pay may be more than the work justifies, HMRC looks at whether the whole package was paid wholly and exclusively for the trade. The package means salary, wages, benefits and pension contributions combined.

Zurich says that when premiums meet the legislative criteria, both the premiums and any benefit paid are eligible for relief from income tax, corporation tax and National Insurance contributions. Aviva says treating premiums as a business expense must be agreed with HMRC.

Is the payout taxed?

Legal & General says its payouts should be free from UK Income Tax and Capital Gains Tax.

Under a suitable trust, Legal & General says the death benefit shouldn't form part of the employee's estate for Inheritance Tax. Inheritance Tax charges might still arise within its trust on some occasions, particularly periodic and exit charges.

When the tax treatment can be lostLegal & General gives tax avoidance as an example of when the favourable tax position may not apply, and HMRC's conditions rule out tax avoidance as a main purpose. At Zurich, taking the policy out of its relevant life policy trust results in extra tax charges for the business and the employee.

You can compare company-paid cover with paying from your own salary using our relevant life insurance calculator. For how tax applies to other policies, see is life insurance tax deductible?

Insurers cap cover as a multiple of your total pay, and the multiple falls as you get older. At Legal & General, Royal London and Zurich, pay can include salary, bonuses, benefits in kind and dividends (at Legal & General, regular dividends from shares in the employer's company).

• Legal & General
• Royal London

0 times

10 times

20 times

30 times

25 times

30 times

25 times

25 times

20 times

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15 times

15 times

Under 40 40 to 49 50 to 59 60 and over

Maximum relevant life cover by age, as a multiple of pay

	Legal & General	Royal London
Under 40	25 times	30 times
40 to 49	25 times	25 times
50 to 59	20 times	20 times
60 and over	15 times	15 times

Legal & General's bands are 18 to 29 and 30 to 39 (25 times each) and 60 to 73. Royal London's figure is a multiple of annual total remuneration. Checked on 5 October 2026.

Zurich's bands are different: 30 times total remuneration at 18 to 39, 20 times at 40 to 49 and 15 times from 50.

Scottish Widows sets a minimum sum assured (the amount paid out) of £10,000 and a maximum of £18,000,000 for level cover. It lets an employer write up to 25 individual policies under one plan. Royal London lists its cover amount as unlimited within its multiples of pay, and the cover can be level, increasing or decreasing.

Legal & General asks for evidence of earnings for cover over £3,500,000, and it counts any life cover the employee already has.

The main difference is who pays: with relevant life cover it's your employer, and with a personal policy it's you. A personal term life insurance policy covers you for an agreed period and pays a lump sum if you die within it.

You can hold both. Insurers may look at the cover you already have: Legal & General, for example, counts it when working out the most it will offer. See having more than one life insurance policy.

It gives one person the kind of cover that death in service gives through a group scheme. Scottish Widows describes it as individual death-in-service benefits outside a registered group life scheme. Many employee packages include death in service, which links cover to your salary and stops if you leave that employer.

Pension rules are the other difference. The Lump Sum and Death Benefit Allowance (usually £1,073,100) caps the tax-free lump sums taken from all your pension schemes. The old lifetime allowance was abolished from 6 April 2024, though some insurer documents, including Aviva's, Zurich's and Vitality's, still mention it.

HMRC deals with a relevant life policy under the rules for employer-financed retirement benefits schemes, which aren't registered pension schemes. If the trust holding the cover is a registered pension scheme, the relevant life rules can't apply.

The payout goes only to individuals or charities, usually through a trust set up from the start. Zurich requires the policy to be placed in a relevant life policy trust. Legal & General's plan assumes its Relevant Life Plan Trust, a discretionary trust (the trustees decide which beneficiaries receive the payout, how much and when).

With Legal & General's trust, the employer is automatically a trustee and the employee isn't. Up to four more trustees can be appointed, and you can be one of them. A nomination form guides the trustees on who you'd like to receive the money, but it isn't legally binding.

HMRC allows the policy to be held in trust as long as the trustees make sure only individuals or charities benefit. A policy that pays other partners or shareholders to buy the share of an owner who has died doesn't qualify. That's a different kind of business life insurance.

A trust that holds only life policies paying out on death, illness or disability doesn't need to register with HMRC's Trust Registration Service, unless it's liable to UK tax. After the death, it stays excluded for two years while the trustees share out the money.

Terminal illness, yes: all six plans we checked include terminal illness cover. They're from Aviva, Legal & General, Royal London, Scottish Widows, Vitality and Zurich. Other illness benefits must work like retirement benefits under HMRC's rules.

Terminal illness

Terminal illness cover pays the sum assured if you're diagnosed with a terminal illness during the term. Scottish Widows includes it, and accidental death cover, at no extra cost.

Each insurer sets its own conditions. Aviva pays if a consultant doesn't expect the employee to live longer than 12 months. Legal & General's cover can't be claimed on a policy shorter than two years. At Zurich, it stops if the policy is moved out of the trust to the employee.

Critical and significant illness

The rules are stricter for other illnesses. An excepted group life policy can't pay out on other events, such as disability. A relevant life policy can include benefits for ill health or disablement during service, but HMRC says they must have the character of retirement benefits, paid on or in anticipation of retirement. Cover that simply compensates for loss of health doesn't count.

Aviva's employee significant illness cover is built around this rule. It covers 28 defined conditions for employees aged 18 to 64. It pays only if the illness leads to the employee retiring or being expected to retire.

If you want cover that pays out on diagnosis whether or not you retire, see personal critical illness cover.

It depends on the insurer. A new employer may take the policy over, or you may be able to keep or replace the cover:

• Aviva: cover is suspended when you leave. A new employer can take the policy over within 90 days, and it keeps its relevant life status; otherwise the policy ends. You can also take out a new personal policy instead, without further health questions, but it won't have relevant life status.
• Legal & General: cover continues without new medical evidence, as long as the premiums are paid.
• Vitality: employees under 65 can replace the cover with a personal protection plan, without extra underwriting.
• Zurich: the policy can stay in its trust if your new employer agrees to take over the policy and the trust. If it's moved out of the trust to you, terminal illness cover stops and there are tax implications.

It depends on your business and your pay. Insurers aim it at small employers without enough staff for a group scheme, and at directors and high earners who want cover above a group scheme. The main appeal is the tax treatment, which isn't guaranteed.

Before your business applies, check these points:

1. Confirm the person covered counts as an employee Directors, including shareholding directors and directors on PAYE, can be covered. Sole traders, equity partners and LLP members can't be covered on their own lives at Aviva, Legal & General or Zurich.
2. Add up pay and existing cover Legal & General, Royal London and Zurich count bonuses, benefits in kind and dividends as pay. Legal & General also counts life cover the employee already has.
3. Check the tax position with an accountant There's no formal HMRC approval, and the tax benefits aren't guaranteed. An accountant can check how the rules apply to your company.
4. Check who the trust can pay The trust must pay only individuals or charities. Check who the trustees will be: at Legal & General, the employer is one automatically.
5. Check what happens if you leave Aviva gives a new employer 90 days to take the policy over. Legal & General keeps cover going as long as the premiums are paid.

A broker will call to go through quotes with you.

• Business life insurance: the types of cover a business can take out
• Key person insurance: cover that pays the business if a key person dies
• Death in service benefit: group life cover provided through your job
• Is life insurance tax deductible?: how tax rules apply to personal and business policies
• Life insurance for the self-employed: personal cover options if you don't have a company
• Life insurance in trust: how trusts work for personal life policies