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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 from leading UK providers.
Directors Life Insurance is very similar to Personal Life Insurance, but 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:
Although Directors Life Insurance is similar to a personal policy, there are some key differences which we’ll explore below.
Directors Life Insurance works just like a personal policy. 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).
The key difference is how the policy is paid for; rather than you paying 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 tax-efficient way to take out Life Insurance for company directors.
SPECIALIST 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. Call 02084327333 or email help@drewberry.co.uk to talk through your options.
Just like with a personal policy, Directors Life Insurance would provide protection in the event of:
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.
If you need Critical Illness protection, there may be other forms of Business Protection Insurance which are more suitable. Call on 02084327333 to have a chat about your protection options today.
Samantha Haffenden-Angear
Independent Protection Advisor
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.
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:
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 startups.
Relevant Life Insurance is a great form of Directors Life Insurance. But in order 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.
Rauri Taylor
Independent Protection Specialist
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:
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.
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:
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.
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.
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.
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.
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:
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.
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. Find out more about the cost of Life Insurance.
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:
Given these factors, Relevant Life Insurance is typically a notably cheaper option than personal cover.
IMPORTANT NOTICE 🧐
The pension lifetime allowance (LTA). was abolished as of 6th April 2023.
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.
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.
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.
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 specialists 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 most suitable deal. Once your policy is in place, you can sleep easy knowing you have a comprehensive policy with a substantial tax saving.
When it comes to protecting yourself and your finances, you deserve first-class service. Here’s why you should talk to us:
If you’re looking for contractor life insurance or other forms of life insurance for directors, getting independent advice is the best place to start.
We can talk you through the best options and explain the way the tax position works to get you the best life cover for you, your business and your family.
Don’t hesitate to pop us a call today on 02084327333 or email help@drewberry.co.uk.
Tom Conner
Director at Drewberry
