Director Life Insurance is a suitable option for many business owners who need life cover. As a matter of fact, company directors are in the unique position of being able to reap significant rewards by taking out life protection through their business.
If you’ve established your own limited company and need personal protection, you might not be sure where to start. From finding the best provider to understanding the tax implications, there’s a lot to consider.
Our guide to Director’s Life Insurance will explain everything you need to know. Or, if you already know the kind of cover you need, you can compare online quotes in 60 seconds. You can compare the best insurance providers in the UK, such as Aviva, Legal & General, and more.
What is Director’s Life Insurance?
Directors Life Insurance is very similar to Personal Life Insurance. However, it is usually referred to as Relevant Life Insurance. This is a type of policy designed specifically for company directors.
Just like a personal policy, Directors Life Insurance will pay out a cash lump sum in the event you pass away or become terminally ill with a diagnosis of 12 months or less. Key features of a policy include:
- 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.
Although Directors Life Insurance is similar to a personal policy, there are some key differences which we’ll explore below.
How Does Directors Life Insurance Work?
Directors Life Insurance, works just like a personal policy. As mentioned above, it will pay out a cash lump sum to your loved ones should you pass away or become terminally ill (diagnosis of 12 months of less).
However, the main key difference is that rather than you pay for the premiums personally, they are paid for by your business. As they are seen as an allowable business expense, your company won’t have to pay tax on them.
This makes Relevant Life Insurance a very tax efficient way to take out life protection for Directors.
EXPERT TIP 🤓
As a Director, taking out Life Insurance through a Relevant Life Policy could save you up to 50% on your premiums compared to a personal policy. To find out more pop us a call on 02084327333 or email email@example.com.
What Does Director Life Insurance Cover?
Just like with a personal policy, Directors Life Insurance would provide protection in the event of:
The cover will pay out if you pass away at any point during the policy term
- Terminal Illness
Most providers will pay an early claim if you become terminally ill. This is typically defined as an incurable condition with a life expectancy of 12 months or fewer.
Can Critical Illness Cover Be Added To Directors Life Insurance?
The short answer is: no. It’s very important to note that Relevant Life Insurance policies cannot include Critical Illness Insurance.
HMRC hasn’t approved the tax status of Relevant Life Insurance with added Critical Illness Cover. This means the tax benefits only extend to life cover.
Level Vs Increasing Cover
A Director’s Life Insurance policy will generally provide Level Term Life Insurance. This means that the amount you’re insured for remains the same throughout the policy term.
You can also opt for increasing life insurance. With this option, both your benefit and premium increase in line with inflation this year. This helps to ensure that your benefit doesn’t lose value over time.
Who Can Get Directors Life Insurance?
From the name, you might think that only directors are eligible for this kind of cover. But actually, that’s not the case. The eligibility for relevant life policies is not limited only to directors. They can be suitable for:
- Directors of a Limited Company
- Management consultants
- High-earning employees of small businesses
- Employees of small businesses in general.
Often, Directors Life Insurance policies are a good option for people who do not have access to a group life insurance scheme. This is often the case when a business has too few employees to qualify. For instance, companies where the director is the only member of staff or start-ups.
How Much Directors Life Insurance Cover Can You Get?
The amount of cover you can take out will depend on several factors. For instance, your age, salary, and company budget will all come in to play.
Depending on the provider you choose, though, your cover could be capped as a multiple of your earnings. The upper limit could be as much as 25 or 30 times your total remuneration, which includes:
- Overtime pay.
For example, let’s say your total remuneration equals £100,000 per year. In this case, you could be permitted to apply for up to £3,000,000 of Relevant Life Insurance.
However, remember that your company will pay for the policy. So you do need to consider a reasonable budget for your life protection.
How Much Insurance Do You Need?
If you think Directors Life Insurance is suitable, you need to think about how much cover you realistically need.
The cash lump sum benefit is paid to your nominated beneficiary in the event that you pass away. So, it’s a good idea to think about what they might use the payout for. For example:
- Repaying a mortgage
- Paying off any other debts
- Covering funeral costs
- Leaving an inheritance for your loved ones.
It stands to reason that taking out a large amount of cover will end up costing more. You need to think carefully about whether your loved ones will need the full maximum benefit you can apply for. If not, reducing your sum assured will result in lower premiums.
Can My Limited Company Pay For My Policy?
Yes, your business can pay for your Life Insurance if you’re a contractor or company director working through your own company.
Through what’s known as Relevant Life Insurance, the business can pay for a policy on your behalf. This offers significant savings on tax compared to paying for a policy personally, and is an HMRC-approved way of arranging life protection.
What Are The Benefits Of Directors Life Insurance?
There’s a reason Relevant Life Cover has a reputation for being a form of highly tax efficient life insurance. The main benefits of taking out this kind of policy are tax-related.
When your limited company pays for the cover, the premiums qualify as a legitimate business expense. This means your company doesn’t pay employer’s national insurance on the funds used to pay for the policy.
You, as the insured person, also benefit from tax savings. This is because you’re not paying for the cover from your post-tax income, which would come at a much higher net cost. You can check out our example below for a more detailed calculation.
How Does HMRC Treat Company Director Life Insurance?
When taken out as Relevant Life Insurance, HMRC treats Director Life Insurance favourably compared to you taking out a policy out personally.
Premiums are typically considered a business expense allowable against corporation tax. Meanwhile, because the company is paying premiums and not you from personal income, premiums also get National Insurance and income tax relief, too.
Lastly, thanks to a specially drafted trust that you set up at the outset of the policy, the payout is received free from inheritance tax as well. It also means a claim payout would never form part of your pension lifetime allowance.
Do I Need A Director Life Insurance Policy?
No one wants to think about the worst case scenario, but it’s something all responsible adults need to consider. If you own your business or have financial dependents, it’s important to make provisions in case of a tragic event. For example:
- What would happen to your loved ones if you suddenly weren’t around anymore?
- Could they keep up with the mortgage or rent payments without your income?
- How would they meet everyday expenses, such as bills, groceries, or even school fees?
If the answer is that you don’t know or that your family would likely struggle, life protection is an important safeguard. It’s there to offer valuable peace of mind to both you and your loved ones.
Having a life protection policy means your loved ones will receive a tax-free lump sum if you pass away. This allows them to repay any outstanding debts and keep up with daily living expenses without your income.
What’s The Risk Of Passing Away?
For years now, life expectancy has been on an upward trend. We’re living longer, so it’s easy to put off thinking about our mortality while we’re younger.
The truth is that as we age, the risk of passing away steadily increases. We’ve put together the below table using mortality data from the Office of National Statistics (ONS). It shows the risks of a healthy man passing away in the next 10 years at various ages.
Life insurance tends to be one of the most affordable types of protection on the market. Applying when you’re younger (and are therefore at a lower risk of passing away) makes it even more affordable. It’s important to be aware that waiting until you’re older to take out a protection policy could increase your premiums.
Using the same ONS data, we’ve created our own Life Expectancy Calculator below. This can help you understand the risk of passing away and give you an indication of how long you might want cover in place for.
A bit morbid we know, but this tool works out the risk of you passing away based on ONS Life Expectancy Data
How Much Does Director Life Insurance Cost?
The cost of a Relevant Life Insurance policy can vary based on several factors. Your cover needs, as well as your personal health, will all have an impact.
It’s important to note up front that a company life insurance plan is generally more cost effective than personal life insurance. This is due to the tax efficient way these policies are set up. We’ll cover this in more detail a little later on.
To give you an idea of cost, we’ve provided some examples below. These show how the cost of a Relevant Life Insurance policy can vary based on several factors.
All life insurance providers are different, and each has their own attitude and approach to risk. What one might consider as high risk, another might not.
To show how costs can vary depending on which life insurance company you choose, we’ve provided an example below. The figures are based on:
- A healthy, 35-year-old director
- £500,000 of level cover
- A 20 year policy term.
Amount Of Cover
The lump sum benefit you want to take out will also have an impact on what you pay. The higher the benefit, the more expensive the cover will be.
To give you an idea of how your sum insured can impact your policy premiums, we’ve provided another example. These figures from Zurich are based on the same 35-year-old as before, taking out a policy with a 20-year term.
Similarly, the length of time you want the policy will affect the cost of your cover. With time, the risks of the insurers paying a costly claim increase. So, a policy with a longer term will cost more than a short-term policy.
This example shows figures from Liverpool Victoria. Again, we’ve based this on the same 35-year-old taking out £500,000 of cover.
Growing older sadly increases our chances of falling unwell and passing away. Taking account of that, we’ve provided another example to illustrate this.
The quotes in the table below are from Royal London. They show the cost of £500,000 of life insurance for directors at various ages.
The type of job you do can also affect the premium you pay due to the level of risks involved. In other words, people in riskier occupations can pay more for their cover.
For example, it will cost more to take out Life Insurance as a manual worker than it would as a marketing consultant. This is because working with heavy machinery can be hazardous, and comes with a greater risk of injury or death.
A marketing consultant may have to travel to meet with clients, but will probably be office-based for most of their time. This means there’s a lower risk of an expensive payout to the company providing life insurance.
Insurers will ask you to complete a thorough health declaration before agreeing to provide you with cover. They’ll carefully consider the risks of any pre-existing medical conditions you may have in order to calculate your premiums. This will include your height and weight, and any upcoming medical procedures.
Depending on any health conditions you disclose, the insurer may ask for further medical evidence. This may take the form of a GP report, a nurse’s screening, or a full medical assessment with a doctor.
If the underwriters feel that providing life insurance to you is a higher risk, you could pay higher life insurance premiums.
Smoking can increase the risks and severity of many health conditions. This can have a knock-on impact on your life expectancy.
In most cases, you’ll pay more for your policy if you’re a smoker. However, there are some insurance providers who are smoking-neutral. In other words, they don’t charge higher premiums for smokers.
We’ve provided an example below from Aviva. This shows the difference in premiums as a smoker compared to a non-smoker.
Similar to a high-risk occupation, having hazardous hobbies can also increase the risk of a claim occurring. For this reason, you might pay higher premiums if you partake in hobbies that put you at a higher risk of injury or death.
Such pastimes include:
- Free style rock climbing
- Motor sports
- Bungee jumping
- Parachuting and gliding
- Flying a plane or helicopter.
EXPERT TIP! 🤓
Most online quote tools only show an initial premium without considering any additional risks. For people with riskier hobbies, roles, or health, the initial quotes may not be accurate. If you’re concerned about your risk factors, it’s always best to speak with a financial adviser.
How Is Director Life Insurance Taxed By HMRC?
As mentioned, a Relevant Life Insurance policy can offer significant savings over personal cover. This is because the premiums are paid for by your business, and this makes them an allowable business expense.
Relevant Life policies are known to offer highly tax efficient life cover. And it’s this tax efficiency that saves you money compared to personal cover.
In general terms, Relevant Life Insurance:
- Is not classed as a taxable benefit in kind
- Is paid for by the business and treatable as a tax deductible business expense
- Is excluded from both employee and employer National Insurance contributions
- Has a lump sum payout that has not historically formed part of your lifetime pension allowance, unlike most group schemes.
Given these factors, Relevant Life Insurance is typically a notably cheaper option than personal cover.
IMPORTANT NOTICE 🧐
As of the Spring budget 2023, the UK chancellor announced the abolition of the pension lifetime allowance (LTA). This came into effect from 6 April 2023.
It’s important to note however, the Labour party has announced that if they were to be elected, the allowance may be reintroduced in the future. If this occurs, we will update our records to reflect any changes. The information on this page is based on the LTA pre 6 April 2023.
Calculate the tax savings you can make by taking out a company paid Relevant Life Insurance policy instead of a personal Life Insurance policy.
Compare Best UK Director Life Insurance Companies
Here at Drewberry™, we’re a whole-of-market consultancy. This means that when we’re carrying out a market review, we’ll obtain quotes from all the top UK providers, such as:
- Legal & General
- Liverpool Victoria
- Royal London
- Scottish Widows
Each provider has different approaches to risk, and what one might charge a higher premium for, another might not. Your rates could vary widely depending on your industry, role, and background.
Not only that, but there’s a lot more to consider other than price. Claim payout rates, customer service and the additional benefits on offer will all impact your final choice. Our experts know the market like the backs of their hands, and can make a suitable recommendation just for you.
When selecting the right provider, another important point to consider is the other features and services that come with your policy. While your policy is there to serve its primary function, most providers offer a little something extra.
Some fairly common additional features include:
- 24 / 7 virtual GP service
- Second medical opinion service
- Fracture cover
- Physiotherapy sessions
- Mental health support
- Counselling and stress helplines
- Health and wellbeing incentives.
It’s good to think carefully about which of these services you might actually use. By choosing the one that best suits your needs, you can be assured that you’re getting the most out of your cover.
Is Directors' Life Protection A Taxable Benefit In Kind?
No, Life Insurance is not a P11D or Benefit-in-Kind in most cases. This means there’s typically no additional tax for you as an individual to pay.
What Happens If I Leave The Company That Pays For My Relevant Life Policy?
As we mentioned above, relevant life insurance policies must be placed into a trust at the outset. This means that ownership of your policy passes to those trustees. If you die, the trustees use their power to ensure your claim is paid quickly, and the funds pass directly to your beneficiaries. You will probably appoint the trustees of your choosing at the outset.
If you move businesses, you don’t need to worry about cancelling your policy and taking out new cover. If a few years have passed, you could end up with higher premiums due to age.
Instead, you can transfer the policy to a new limited company or business. All you’ll need to do is complete a new discretionary trust. This allows your policy to move with you, and means you can continue enjoying the benefits the cover provides.
I Don't Think Director Life Insurance Is Right For Me. What Else Should I Consider?
Relevant Life Cover enables small businesses to provide their employees with a Death in Service Benefit even though they may not have enough staff to set-up a group scheme. But depending on your circumstances, it might not always be suitable. In cases like this, there are plenty of other options for Directors Insurance out there which we’d be happy to advise you on further.
For instance, if you’re looking for sickness insurance, we’d generally recommend considering Directors Income Protection over Critical Illness Insurance. Where Critical Illness cover pays out a single benefit following a serious diagnosis, Income Protection can pay out indefinitely. It also covers you if you’re unable to work for any reason, not just for critical conditions.
If you have a company of at least two to three employees, you might also consider a group life scheme. Providing death in service protection as an employee benefit is an effective way to protect your staff. It also means your limited company can still enjoy corporation tax relief on an allowable business expense.
You might consider:
Or, if you’re looking for other forms of business protection, you could consider:
These provide valuable life and income protection for important stakeholders, including the company directors.
Our expert in-depth review of each of the UK's leading providers
Compare Director Life Insurance Quotes & Get Expert Advice
When you’re looking for Life Insurance for Company Directors, it’s important you get advice. From the details of how much cover you need to the tax and national insurance implications, there’s a lot to consider.
Our friendly experts are here to help you through all the complications surrounding Life Insurance for Directors. We can guide you smoothly through the whole process, find the right provider, and negotiate the best deal. Once your policy is in place, you can sleep easy knowing you have a comprehensive death in service policy with a substantial tax saving.
Why Speak to Us?
We started Drewberry™ because we were tired of being treated like a number.
We all deserve a first class service when it comes to issues as important as protecting our health and our finances. Below are just a few reasons why it makes sense to talk to us.