Relevant life policy for contractors: tax-efficient life cover through your limited company
The Opportunity
Employees at larger organisations often have death-in-service benefit — typically three to four times salary, paid to dependants if they die while employed. Limited company contractors have no equivalent unless they arrange it themselves. A relevant life policy (RLP) is the contractor's version of death-in-service. It's a life insurance policy arranged by your limited company, with premiums paid by the company as a business expense. It is one of the most tax-efficient protection products available to limited company directors — and one of the most underused.
How a relevant life policy works
The limited company takes out the policy on the life of the director
Premiums are paid by the company — they are a corporation tax deductible business expense
Premiums are not treated as a benefit in kind — no income tax or NIC liability for the director
On the director's death, the lump sum is paid to a discretionary trust and distributed to beneficiaries
The lump sum does not form part of the director's estate — no inheritance tax liability
The lump sum does not count toward the pension lifetime allowance
The tax efficiency comparison
This is the clearest way to illustrate the value. Personal life insurance paid personally is paid from post-tax, post-NIC income. Relevant life policy paid by the company is paid from pre-tax company profits.
Personal life insurance (40% taxpayer)
£200/month premium paid personally
Effective gross cost: ~£340/month
(salary must be grossed up for tax and NICs to pay the premium)
Relevant life policy (company-paid)
£200/month premium paid by the limited company
Effective net cost to director: ~£162/month
(after 19% corporation tax relief)
Saving on identical cover: approximately £178/month
Who qualifies
Must be a limited company or other employer
The insured must be an employee or director of the company
Cover limit: typically up to 25x total remuneration (salary plus dividends) — well above what most contractors need
Available for working directors of one-person limited companies — this is not restricted to larger businesses
The discretionary trust
The policy must be written in trust to secure the tax benefits. The trust means:
Benefit is paid outside the director's estate (no IHT)
Benefit can be distributed quickly without waiting for probate
The director nominates beneficiaries but trustees have discretion over distribution
Most specialist providers handle the trust documentation as part of the setup process. It adds a small layer of administration but is not complex for a straightforward single-director company.
Relevant life policy vs personal life insurance
| Relevant Life Policy | Personal Life Insurance | |
|---|---|---|
| Who pays premiums | Limited company | Individual personally |
| Corporation tax relief | Yes | No |
| Benefit in kind (BIK) | No | N/A |
| Inheritance tax | No (held in trust) | Potentially yes |
| Counts toward pension LTA | No | No |
| Setup complexity | Slightly higher (trust required) | Simple |
For a limited company contractor with dependants, a relevant life policy is almost always preferable to a personal life insurance policy for the same cover. The exception: contractors close to winding up their company may prefer a personal policy for continuity.
How much cover do contractors need?
A common approach: cover outstanding mortgage debt plus an income multiple for dependants. A rule of thumb is 10x total income, though the right level depends on family circumstances, existing savings, and other policies in place.
For a contractor on £100,000/year, £1,000,000 of relevant life cover is a reasonable benchmark — and premiums on a healthy 35-year-old for that level are modest, often £30–£60/month, paid by the company.
FAQ: Relevant Life Policy for Contractors
What is a relevant life policy?
A relevant life policy is a life insurance policy arranged by a limited company on the life of a director or employee. Premiums are paid by the company as a corporation tax deductible expense, the benefit is paid to dependants via a discretionary trust, and it does not form part of the director's estate for inheritance tax purposes.
Can a one-person limited company take out a relevant life policy?
Yes. A relevant life policy is available to any limited company director, including sole directors of one-person companies. The company takes out the policy, pays the premiums, and the director is the insured life.
Are relevant life policy premiums tax deductible?
Yes. Premiums paid by the limited company are treated as a corporation tax deductible business expense. They are not treated as a benefit in kind, so the director pays no income tax or National Insurance on the premiums.
What is the maximum cover on a relevant life policy?
Most providers allow cover up to 25 times total remuneration (salary plus dividends). For most contractors, this is well above what they need — a contractor on £100,000/year could arrange up to £2.5m of cover.
Does a relevant life policy need to be written in trust?
Yes. The policy must be written in a discretionary trust to secure the tax benefits — particularly the inheritance tax exemption. Most providers handle the trust documentation as part of the setup process.
Related guides
Talk to an AutoBooks accountant about a relevant life policy for your limited company
Or see our full contractor insurance guide.