Is Director's Life Insurance A Deductible Business Expense?

Directors' life insurance is a type of life insurance that company directors can choose to take out through their business rather than personally. This type of policy is called 'Relevant Life Insurance' and it comes with a range of attractive cost-saving benefits. The main benefit is that it's a tax-deductible expense.

Directors' life insurance is a tax-deductible business expense

Relevant Life Insurance is a specific type of cover that provides directors, owners, and employees of small businesses with life cover, offering financial protection to their families in the event of their death. It is also known as Relevant Life Cover and is a death-in-service benefit for smaller businesses instead of a group life scheme.

The premiums are paid by the company, introducing tax efficiencies and saving higher-earning directors money compared to a personal life insurance policy. The company can claim corporation tax relief on the premiums paid, and there is no need to pay National Insurance. As the policy is written in trust, beneficiaries will not have to pay inheritance tax on the payout, and it bypasses probate, meaning they receive the funds promptly.

Relevant Life Insurance is not available to those taxed as self-employed or sole traders. It is also important to note that the policy must be for life insurance only and not include critical illness cover, as this may affect its status as a tax-deductible business expense.

Relevant life insurance is a type of directors' life insurance

A Relevant Life Policy (RLP) is a tax-efficient way to provide a cash sum to employees of private limited companies (such as contractors) should they die. The policy is paid for by your limited company, written in trust, and the premiums are an allowable business expense.

Relevant Life Insurance is a type of policy designed specifically for company directors. It is usually referred to as Relevant Life Insurance. It provides you with personal life insurance cover. If you pass away while the policy is in place, a claim will be paid to your loved ones. The payout can help your family cope financially through a difficult time.

The main difference between Directors' Life Insurance and a personal policy is that the premiums for the former are paid for by the business and are seen as an allowable business expense. This makes Relevant Life Insurance a very tax-efficient way to take out life protection for directors.

Relevant Life Insurance is a great form of Directors' Life Insurance. However, it's important to note that to put this cover in place, there must be a company structure to own and pay for the premiums. Sole traders and equity partners (shareholders) wouldn't be eligible and would need to consider other forms of protection.

Relevant life insurance is not available to the self-employed

Relevant life insurance is a cost-saving option for employees, as it is not considered a benefit-in-kind, meaning no additional income tax or National Insurance contributions are necessary. It is also tax-efficient for the beneficiaries, as any payout will not be subject to income tax or inheritance tax.

However, this type of insurance is not available to those who are self-employed, as it is considered a group life insurance scheme. Group life insurance schemes are typically only available to companies with multiple employees, and relevant life insurance is one way for smaller businesses to provide this benefit to their employees.

While relevant life insurance is not an option for the self-employed, other types of life insurance are available, such as term life insurance, whole life insurance, and universal life insurance. These policies can be purchased by individuals directly and are not dependent on employment status. They provide a financial safety net for loved ones in the event of an untimely death.

Directors' life insurance payouts go to beneficiaries

Directors can choose to take out life insurance via their business rather than personally. This type of policy is called 'Relevant Life Insurance', and it comes with a range of attractive cost-saving benefits. The main difference between this and personal life insurance is that Relevant Life Insurance is paid for by the company, not the individual. This means that the policy is classed as an allowable business expense and is tax-deductible.

Relevant Life Insurance is a death-in-service benefit for smaller businesses instead of a group life scheme. It is owned and paid for by a limited company, introducing several tax efficiencies. For example, Relevant Life Insurance isn't a P11D benefit in kind, meaning that company directors don't have to pay any additional income tax or make extra National Insurance contributions.

Relevant Life Insurance is a tax-efficient way of providing for your loved ones. The policy pays out a lump sum to your chosen beneficiaries in the event of your death. In most cases, life insurance payouts are income tax-free to beneficiaries. However, if the death benefit accrues interest before being paid out, the interest portion is taxable as income.

The way the death benefit is distributed depends on how the policy was set up. The policyholder designates one or more beneficiaries, who are the individuals or organizations that will receive the payout. The death benefit is typically paid out as a lump sum, though some policies may offer other options like instalment payments or an annuity.

Relevant life insurance is not a P11D benefit-in-kind

Relevant life insurance is a type of policy for an individual employee, including the owner of the business. It is not available to individuals taxed as 'self-employed', i.e. sole traders. The premiums are paid for by the company and are written into a discretionary trust. The trust pays out a lump sum to the individual or their beneficiaries if they die while employed.

As relevant life insurance isn't a P11D benefit, company directors needn't pay any additional income tax or make extra National Insurance contributions. Equally, the company won't need to pay employer National Insurance contributions either.

Writing the benefit into a trust is essential. By doing this, the payout bypasses both the business and the deceased's estate, making it a tax-efficient company life insurance policy for everyone. As the relevant life policy will be written into a specialist "relevant life trust", claims are paid promptly to the beneficiary via the trust, negating inheritance tax and avoiding delays with probate.

Relevant life insurance is a reasonably new type of business protection explicitly designed for small businesses, their employees and directors who haven't been able to access a group life insurance scheme because they have too few employees.

Relevant life insurance is especially suited to:

• Company directors (with their own limited company)
• Contractors and management consultants who deliver their services via a limited company
• Employees of small businesses where a group life insurance scheme might not be possible
• High-earning employees who want additional life insurance options that don't count towards their annual or lifetime pension allowance

Relevant life insurance is a smart way to buy life insurance as HMRC doesn't consider it to be a benefit-in-kind, as long as the premiums are paid 'wholly and exclusively' for the purposes of the business. Contributions to the relative life plan form part of an employee's remuneration package, which may also include other benefits, such as contributions to an executive pension.

As a result, the employee doesn't pay any income tax on the value of the benefit. Similarly, the company does not have to pay employers' National Insurance contributions. Combined, these measures represent a significant saving over the life of a policy, especially for higher-rate taxpayers.

Frequently asked questions