Running a limited company already keeps your calendar packed, so paying more for personal life cover than you need feels frustrating. The good news is that HMRC-approved alternatives exist.
Switching your personal protection to a Relevant Life Plan can redirect cash from your pocket back into growing the business while keeping loved-ones secure. Below, we unpack how the arrangement works and exactly where the genuine savings hide.
High Premiums Challenge
Traditional life policies are usually paid from net salary or dividends, so every pound of premium first suffers Income Tax and National Insurance deductions. That double hit amplifies costs.
Why directors notice the pain faster
Unlike employees on fixed packages, director-shareholders control how cash leaves the company. Seeing the same £100 premium requires around £130 of gross profit to meet clamps attention quickly.
Hidden opportunity cost
When after-tax cash funds personal cover, profits that could boost retained earnings or R&D vanish. Over ten or twenty years, the cumulative opportunity loss dwarfs original premium figures.
Relevant Life Insurance explained
A Relevant Life Plan (RLP) is an individually underwritten “death-in-service” style policy that the company owns and pays for, held in a discretionary trust for beneficiaries.
Key structural features
The policy pays a tax-free lump sum on death or terminal illness before age 75. Because benefits sit outside the estate, proceeds usually avoid Inheritance Tax as well.
Legislative foundation
RLPs rely on sections 393B(4) and 308A of the Income Tax (Earnings and Pensions) Act 2003, plus corresponding Finance Act guidance. Unlike group schemes, they target one life yet retain tax efficiency.
Eligibility For Directors
Most full-time, salaried directors of UK limited companies qualify, provided they are employees for PAYE purposes and below the scheme’s usual upper age, often 73 or 74 at set-up.
Typical exclusions
If you participate in a registered group life policy exceeding HMRC pension allowance multiples, duplication rules may prevent an additional RLP. Sole traders cannot use the structure either.
Evidence and underwriting
Because the cover is individual, insurers still ask medical questions and sometimes request nurse screenings. However, sums assured broadly mirror ordinary level-term limits once income multiples stack correctly.
Key Policy Advantages
The commercial twist turns several dials simultaneously, delivering savings that compound year after year. The headline benefits appear below.
- Corporation-paid premiums: The company settles the invoice directly, so directors avoid drawing extra salary or dividends to fund protection.
- Full corporation tax deduction: Premiums qualify as an allowable business expense provided “wholly and exclusively” tests are met.
- No benefit-in-kind charge: HMRC guidance confirms employees are not taxed personally on premiums or benefits, unlike some expected benefits.
- Inheritance Tax shelter: Trust ownership means proceeds usually bypass the estate, helping families receive the cash quickly.
- High cover limits: Several insurers allow multiples of eight to ten times remuneration, more generous than small group schemes.
When combined, those points translate into substantially lower real-world costs than paying for ordinary level-term cover from post-tax income.
Corporation Tax Relief
Since April 2023 the main Corporation Tax rate on profits over £250,000 stands at 25 per cent, making deductible expenses more valuable. See how relief works step by step:
- Invoice arrives: The insurer bills £1,000 annual premium to the company ledger.
- Expense posted: Your accountant records the payment under “staff welfare—life assurance”.
- Tax computation: The £1,000 reduces taxable profits, potentially saving up to £250 of corporation tax for companies above the upper earnings threshold.
- Cash impact: Net cost to the company becomes £750 before considering personal tax avoided.
- Overall saving: Compared with paying £1,000 from salary subject to Income Tax and National Insurance, total savings can approach the widely quoted “up to 50%” figure for higher-rate taxpayers.
HMRC’s own manuals plus Legal & General’s business protection guides illustrate the deductibility criteria clearly.
Personal Tax Savings
Switching to a company-funded plan eliminates Benefit-in-Kind charges and stops grossing up dividends to net the same protection. Those two moves shelter earnings from multiple tax layers.
Good-bye to NI on premiums
Because the expense is corporate, neither employee nor employer National Insurance applies. Directors paying class 1 contributions keep more of each remuneration pound.
Dividend optimisation
Where directors use dividends extensively, removing life insurance from personal expenditure reduces the need to draw additional profits that might otherwise breach higher dividend tax bands.
Pension Allowance Protection
Death-in-service group schemes count toward the Lifetime Allowance, but a Relevant Life Plan does not. High earners therefore sidestep unintended pension charge traps.
Why the distinction matters
Although the Lifetime Allowance is frozen until April 2028, inflation pushes fund values upward, says MyKeyManInsurance.com. Shielding death benefits outside the registered pension environment preserves future headroom.
Interaction with annual allowance
Because premiums are not employer pension contributions, they leave the £60,000 annual allowance untouched, letting directors continue salary-sacrifice or personal SIPPs unhindered.
Simple Setup Steps
The administrative process is lighter than many assume; follow these practical stages to implement cover quickly.
- Choose insurer: Compare premiums, underwriting limits and trust wording among leading providers.
- Complete application: Supply company details, salary, dividends and medical questionnaire online.
- Sign discretionary trust: Directors act as trustees alongside an additional adult to meet trust law requirements.
- Submit evidence: Upload copies of Photo ID, accounts and any requested medical reports.
- Activate payroll note: Flag the policy on the ledger for annual accounts; no P11D entry is necessary.
Most brokers handle paperwork end-to-end, and the policy often issues within two weeks barring medical delays.
Cost Comparison Example
Royal London’s calculator illustrates tangible savings, summarised below for a 45-year-old director seeking £500,000 of cover to age 65.
- Personal level term: Gross income required to net the premium reaches markedly higher levels due to combined Income Tax and National Insurance deductions.
- Relevant Life Plan: Net corporate cost after Corporation Tax relief falls significantly, delivering headline savings close to the example “up to 50%”.
- Cash-flow difference: Over twenty-year terms, retained profits cumulatively exceed five-figure sums, money that can fund growth or dividends.
- Family peace of mind: Beneficiaries still receive the same £500,000 lump sum, demonstrating that savings do not compromise protection.
Use the free calculator to replicate figures for your age, health and remuneration profile, then share outputs with your accountant for verification.
Conclusion: Protect, Save, Reinvest
Swapping personal life cover for a Relevant Life Plan lets directors secure loved ones, trim both corporation and personal taxes, and recycle savings back into business ambitions. Act now, enjoy efficiency forever.
Sources
- HM Revenue & Customs (2025) https://www.gov.uk/corporation-tax-rates/rates
- Legal & General (2024) https://www.legalandgeneral.com/insurance/business-protection/relevant-life-insurance/tax-treatment/
- Royal London (2025) https://adviser.royallondon.com/technical-central/protection-guidance/relevant-life-plan/rlp-frequently-asked-questions/
- ITContracting.com (2025) https://www.itcontracting.com/financial-services/relevant-life-8-key-facts-limited-company-owners/
