Tax Benefits of Relevant Life Insurance for Employees

By Olivia Johnson - Trusted UK Business Expert

Last Updated 1st of June 2026

5 minute read

If you want to save tax and protect your team, this guide will help. Relevant Life Insurance is simple and smart for UK businesses. We will show how it works and why many firms choose it.

Relevant Life Insurance is a tax-efficient life cover paid by an employer for an employee. Premiums may be treated as a business expense, often free from income tax, National Insurance, and benefit-in-kind charges, making it a cost-effective way to provide protection.

There is more to know before you choose a plan. We will break down the rules, the savings, and how to set it up. Keep reading to make the best choice for your business and your team.

Unlock the full value of Relevant Life Insurance for Employees today. Click the link below to explore tax-efficient options, reduce costs, and protect your team with the right cover.

What Are Tax Benefits of Relevant Life Insurance for Employees?

Relevant Life Insurance is a type of life cover for employees. It is paid by the employer, not the employee. The aim is to give financial help to the employee’s family if they pass away.

The key benefit is tax savings. In the UK, this type of policy can be very tax-efficient when set up correctly.

Here is why:

• Premiums are usually paid by the business
• Payments may count as an allowable business expense
• No benefit-in-kind tax for the employee in most cases
• No National Insurance contributions (NICs) on premiums
• Payouts are usually free from income tax
• Policies are written in trust, which can help with inheritance tax

This makes it a powerful tool for both employers and employees. It protects people while saving money at the same time.

How Relevant Life Insurance Saves Tax

Relevant Life Insurance is not just about protection. It is also about smart tax planning, as shown in this guide on how Relevant Life Insurance can help you save.

Let’s explore how it works in more detail.

Corporation Tax Relief

When a business pays for Relevant Life Insurance, the premiums are often treated as a business expense.

This means:

• The company can deduct the cost from its profits
• Lower profits mean less corporation tax to pay

For example:

If a company pays £1,000 in premiums, it may reduce its taxable profit by £1,000. This lowers the total tax bill.

This is one of the biggest benefits for employers.

No Benefit-in-Kind Tax

Most employee benefits, like company cars or private health insurance, are taxed as a benefit-in-kind.

But Relevant Life Insurance is different.

• It is usually not classed as a benefit-in-kind
• The employee does not pay income tax on it

This makes it very attractive to employees. They get valuable cover without extra tax.

No National Insurance Contributions

Another big saving is on National Insurance.

• Employers do not pay NICs on premiums
• Employees do not pay NICs either

This reduces the overall cost of offering the benefit.

Tax-Free Payouts

When a claim is made, the payout goes to the employee’s family.

Because the policy is written in trust:

• The money is usually free from income tax
• It can be paid quickly to beneficiaries

This gives peace of mind. Families get full support without tax deductions.

Inheritance Tax Efficiency

Relevant Life policies are often placed in trust.

This means:

• The payout does not form part of the employee’s estate
• It may not be subject to inheritance tax (IHT)

This is very helpful for high earners or directors. It keeps more money in the hands of loved ones.

Why Businesses Use Relevant Life Insurance

Many UK businesses choose this type of cover. It is popular with:

• Small businesses
• Directors of limited companies
• High earners without group life cover

Here are the main reasons:

It is a smart way to offer benefits without high costs.

This type of cover is especially useful for small firms, as explained in our guide to Relevant Life Insurance for SMEs.

Who Can Get Relevant Life Insurance?

This cover is for employees only. It is not for self-employed people with no company.

Eligible people include:

• Company directors
• Full-time employees
• Some part-time staff

It is ideal for small firms that do not have group life insurance.

How Much Cover Can You Get?

The level of cover depends on age and salary.

Most insurers offer:

• Up to 15–25 times annual salary
• Fixed or decreasing cover options

For example, if an employee earns £40,000, cover could be up to £1,000,000.

This gives strong protection for families.

Is It Better Than Personal Life Insurance?

Relevant Life Insurance often has better tax benefits than personal cover.

Let’s compare:

For directors, it is often the more efficient option.

What Are the Rules to Follow?

To keep tax benefits, rules must be followed:

• The policy must be set up by the employer
• It must cover death before age 75
• It must be written in trust
• It cannot be used for investment

If rules are not followed, tax benefits may be lost.

How Do You Set Up a Policy?

Setting up Relevant Life Insurance is simple.

Steps include:

• Choose an insurer
• Decide cover amount
• Set up a trust
• Pay premiums through the business

Many firms use a broker to help. This ensures everything is done correctly.

You can also follow this guide on how to choose a director’s life insurance policy to make the right decision.

Deeper Insight: Why Directors Benefit the Most

Directors of small companies gain huge value from Relevant Life Insurance, especially when using tax-efficient life insurance for directors.

Here’s why:

• They can use company funds to pay premiums
• They avoid personal tax costs
• They gain high-value cover

For example, instead of paying themselves more salary (which is taxed), they can use the business to fund life cover.

This is a smart financial strategy.

Example

Let’s look at a simple case.

Sarah is a director of a small company.

• Salary: £50,000
• She wants £500,000 life cover

If she buys personal cover:

• She pays from her taxed income

If she uses Relevant Life Insurance:

• The company pays
• It may reduce corporation tax
• No benefit-in-kind tax

Result: Sarah saves money and gets the same cover.

Key Advantages at a Glance

Here is a quick summary:

• Tax-efficient for employers and employees
• No income tax or NICs on premiums
• Tax-free payout to family
• Helps with inheritance tax planning
• Easy to set up for small businesses

This makes it one of the best employee benefits in the UK.

You can explore the key benefits of a relevant life insurance policy in the UK to see why many businesses choose it.

Want to save tax and protect your team?

Click the link below to compare the best Relevant Life Insurance policies today and find the right cover for your business.

FAQ

What is Relevant Life Insurance?

It is a life insurance policy paid by an employer for an employee, designed to be tax-efficient.

Are premiums tax deductible?

In many cases, yes. They are often treated as a business expense.

Do employees pay tax on the benefit?

Usually no. It is not normally classed as a benefit-in-kind.

Is the payout taxed?

Payouts are usually free from income tax and may avoid inheritance tax if set up correctly.

Who is it best for?

It is ideal for small businesses, directors, and companies without group life cover.

Can self-employed people get it?

No, you must have a limited company and be an employee of that company.

How long does cover last?

It usually runs until age 75 or the end of employment.

This guide shows that Relevant Life Insurance is more than just cover. It is a smart way to save tax, reward staff, and protect families.