What Does a Relevant Life Policy Insurance Guide Offer for Directors?

This guide explains how company directors and small business owners can use tax-efficient life insurance to protect their families while also strengthening their mortgage readiness. It also outlines how lenders assess affordability, credit profile, income multiples and documentation for directors.

A Relevant Life Policy is a tax-efficient insurance policy paid for by a limited company that provides individual life cover for a director or key employee. It offers a death-in-service benefit without needing a group life scheme, helping protect your family while reducing personal expenditure and supporting mortgage affordability.

What is Relevant Life Insurance?

Relevant Life Insurance is an employer-funded life cover arrangement designed for UK residents who are company directors, employees or key employees of a limited company. It provides a single-life death-in-service benefit similar to a group life insurance scheme but without requiring multiple employees.

Relevant Life cover is usually set up as a single life death-in-service benefit policy and written into a relevant life plan trust so the payout goes directly to beneficiaries. This helps avoid inheritance tax and ensures the money is distributed without delays in probate.

A Relevant Life Insurance Plan differs from whole of life protection or other life plans because it is an excepted group life policy designed uniquely for employer-funded arrangements. It offers directors and business owners a practical and tax-efficient alternative to large group life schemes.

Why Company Directors Use Relevant Life Policies

Key reasons directors choose this form of life insurance policy include:

• Premiums are paid by the business, not from personal income

• Payments are usually not treated as a P11D benefit

• It provides employer-funded life cover for a single individual

• It can be more cost-effective than personal life policies

• It offers a tax-efficient alternative to group life schemes

• It covers employees, directors or key employees without minimum numbers

• Terminal illness cover is often included

• It avoids affecting lifetime allowances associated with older pension rules

Directors who have civil partnerships, dependantsAny individuals who depend on the borrower for financial sup... or long-term financial responsibilities often use Relevant Life cover to ensure loved ones are financially protected if something happens unexpectedly.

Eligibility and How Cover Amounts Are Set

Typical eligibility requirements include:

• Must be an employee or director of a UK limited company

• Must be a UK resident

• Policy must be employer-funded

• Beneficiaries named within the relevant life plan trust

• Cover based on total remuneration (salary + dividends where accepted)

Insurers often use multiples of annual remuneration to set the sum assured. Younger clients may be eligible for higher multiples, while older applicants or those with reduced life expectancy may have lower maximum limits.

A Relevant Life calculator can help estimate appropriate levels of cover, although insurers make the final decision.

Tax Treatment and Trust Structure

Key tax considerations include:

• Premiums paid by the company may be allowable if considered wholly and exclusively for business purposes

• Premiums are not usually taxable as a benefit-in-kind for the employee

• The payout is normally outside the deceased’s estate due to the relevant life plan trust

• Policies operate separately from pensions and traditional group life schemes

• As an excepted group life policy, it is designed to provide tax-efficient life protection

This makes it suitable for businesses that want to offer life cover without establishing full group life insurance.

Mortgage Fundamentals for Company Directors

Directors applying for a mortgage must understand how lenders evaluate income, commitments and financial stability. A Relevant Life Policy can support these assessments by reducing personal insurance costs and demonstrating structured financial planning.

Affordability Checks

Lenders evaluate:

• Total taxable income

• Salary and dividends

• Business profits

• Existing credit commitmentsAny existing financial commitments, such as credit card or l...

• Personal spending patterns

• Housing costs after interest rate stress tests

Income Multiples

Although lenders vary, many use affordability-based limits equivalent to roughly 4×–5× income depending on credit profile, deposit size and financial strength.

Credit Profile Expectations

• Clean recent conduct

• No unpaid defaultsMissed payments on credit accounts, which can affect a borro... or major recent arrears

• Stable use of credit

• Verified identity documents and UK residencyThe borrower's residency status, such as whether they are a ...

Deposit Requirements

• Higher deposits result in lower loan-to-value (LTV) ratios

• Some lenders require larger deposits from directors, depending on trading history

Mortgage Product Types

• Fixed-rate mortgages provide payment certainty

• Tracker mortgages follow Bank of England base rateThe interest rate set by the Bank of England, affects the in...

• Interest rates depend on creditworthiness, deposit and income stability

Buy to Let Considerations

• Rental income must meet lender stress tests

• Limited company Buy to Let requires business documentation

• Strong financial protection planning, such as life insurance policies, may be viewed positively

Pros and Cons of Relevant Life Policies

Pros

• Employer-funded life cover

• Does not count as a P11D benefit

• Payments typically outside inheritance tax

• Suitable for businesses with only one director

• Includes death-in-service style benefits

• Often includes terminal illness cover

• Supports financial planning for Company Directors

• Works as an alternative to group life insurance schemes

Cons

• Must follow HMRC rules carefully

• Corporation tax relief not guaranteed

• Not a substitute for full group life schemes for larger employers

• Critical illness cover is not usually included (unless purchased separately)

Common Challenges and Practical Tips

Challenges

• Demonstrating sustainable income from salary and dividends

• Providing two years of accounts for mortgage applications

• Understanding insurer limits around life expectancy and age

• Determining cover levels without group life schemes

Practical Tips

• Work with an accountant to balance salary and dividends

• Keep business accounts updated and professionally prepared

• Review your credit file, reduce revolving debt and maintain strong payment conduct

• Assess whether you need critical illness cover alongside life protection

Why Use a Whole-of-Market Adviser?

A whole-of-market adviser helps directors and key employees understand how insurance and mortgage planning fit together. This includes:

• Access to more lenders

• Personalised guidance

• Support for complex income profiles

• Tailoring life cover to business structures

• Ensuring compliance with trust arrangements

• Helping you prepare documents for mortgage underwriting

Going directly to a single lender cannot provide this breadth of choice.

How-To – Step-by-Step Process for Directors

Step 1 – Seek Professional Mortgage Advice

Find a specialist adviser experienced with limited company income, employer-funded life cover and complex financial structures.

Step 2 – Prepare Required Documents

Prepare:

• ID (passport or driving licence)

• Proof of addressEvidence of a borrower's current address, such as a utility ...

• Two years of accounts

• SA302s or tax calculations

• Dividend vouchers

• Business bank statementsA record of a borrower's financial transactions often requir...

• Personal bank statements

• Credit file

Step 3 – Submit Application via Adviser

Your adviser will present your case to a lender, answer underwriting questions and ensure business-funded policies (like Relevant Life Insurance) are disclosed correctly.

FAQs

Q1. Is Relevant Life Insurance suitable for small businesses?

Yes. It works for single-director companies and micro-businesses that don’t qualify for group life insurance.

Q2. Does Relevant Life cover include critical illness cover?

No. Critical illness cover must be purchased separately. Most policies only include death-in-service and terminal illness cover.

Q3. Is the payout subject to inheritance tax?

Generally no, because the relevant life plan trust keeps the benefit outside the estate.

Q4. Can unmarried partners or civil partnership beneficiaries be included?

Yes, beneficiaries can usually include spouses, civil partners or dependants.

Q5. Does Relevant Life Insurance help with mortgage applications?

It can support affordability by reducing personal expenses, and demonstrates structured long-term financial planning.