Relevant Life Policy Calculator United Kingdom

What a relevant life policy costs the business

A relevant life policy is single-life death-in-service cover that a company buys for one employee, with the benefit paid into a discretionary trust for that person’s family. It exists because most small companies cannot access a group scheme, and its appeal is the tax treatment: the premium is normally an allowable business expense, there is no benefit in kind on the employee, and no employee or employer National Insurance is due on it.

The calculator prices the alternative. To buy identical cover personally, a director would have to draw extra salary and pay Income Tax and National Insurance on it, and the company would pay employer National Insurance on top. The tool works out the gross salary needed to leave the premium in the employee’s hand, adds the employer contributions, applies corporation tax relief to both routes and shows the difference in pounds.

Why the two routes cost such different amounts

The company route avoids three charges: Income Tax at the employee’s marginal rate, employee National Insurance, and employer National Insurance on the extra salary, which is a real cost to the business even though it never appears on the payslip.

Corporation tax relief applies to both routes, so it narrows the gap without closing it. The company deducts the relevant life premium as an expense, and in the personal route it deducts the salary and employer contributions. Relief cannot recover the Income Tax and National Insurance the personal route triggers before the money reaches the insurer.

For a higher rate taxpayer the combined effect roughly halves the net cost. For a director with income between £100,000 and £125,140, where the personal allowance is being withdrawn and the marginal rate is effectively 60%, the saving is about two thirds. The calculator reads the marginal rate from the salary you enter, taper included, so the comparison reflects your actual band.

The conditions that have to be met

The tax treatment is not automatic. The policy must be capable of being an excepted group life policy: the benefit is payable on death (or terminal illness) before a specified age, normally 75, and there is no surrender value. The employer must be the applicant and the policy owner, the employer must pay the premiums, and the benefit must be held under a suitable discretionary trust for the individual’s family or dependants.

The purpose test matters as much as the paperwork. The arrangement must exist for the business, to attract and retain an employee, and not as a tax avoidance device. Cover far out of proportion to the individual’s remuneration invites a challenge, which is why most insurers underwrite up to a multiple of total remuneration including dividends.

Deductibility for corporation tax follows the ordinary wholly and exclusively test, with no special rule, and the local inspector decides it on the facts. In practice a policy covering a genuine employee at a sensible level is treated like any other employment cost.

Where it beats a pension death benefit

Death benefits from a registered pension scheme are measured against the lump sum and death benefit allowance, and anything above it is taxable on the recipient. A relevant life policy sits outside that regime, so a large sum assured does not use up the allowance that a director’s pension death benefits will need.

The trust also keeps the proceeds outside the estate for inheritance tax and pays out quickly, because the trustees do not have to wait for probate. That makes it a common companion to ordinary family protection rather than a replacement for it.

Setting the sum assured and the trust

Insurers normally underwrite up to a multiple of total remuneration, which for a director usually includes dividends from the same company as well as salary. The multiple falls with age, so a policy arranged in your thirties can support a much larger sum assured than the same remuneration would twenty years later. If the cover you want exceeds the multiple, part of it may have to be arranged personally or through a second product.

The trust is essential. Without it the proceeds would be payable to the employer, which would defeat the purpose, expose the money to the company’s creditors and put the benefit in kind exemption at risk. Every major provider supplies a trust deed with the application, and it should be completed and signed at the start.

Naming beneficiaries expresses a wish, not a binding instruction. The trustees hold a discretion, which is what keeps the proceeds outside the estate, so a letter of wishes kept up to date after a marriage, divorce or birth is worth more than a fixed nomination. Trustees should include someone other than the life assured; most people appoint a spouse or business partner alongside themselves.

Reading the results

The main figure is the net cost to the business of the relevant life route after corporation tax relief. Next to it is the net cost of the same outcome through salary, with the gross salary required and the employer National Insurance on it. The annual saving is the difference, and the term figure multiplies it over the life of the policy, which helps when comparing quotes, because a small premium difference matters far less than the tax treatment.

The cost per £100,000 of cover lets you compare quotes like for like when the sum assured differs. Premiums for a relevant life policy are usually similar to personal cover from the same insurer; the advantage comes from the tax treatment.

All figures are an estimate based on published corporation tax, Income Tax and National Insurance rates for the current year, and they assume the premium is fully allowable and the policy meets the excepted group life conditions. This is general information, not tax or financial advice. Take advice from a qualified adviser and confirm deductibility with your accountant before arranging cover.

About This Tool: Relevant Life Policy

Relevant life policy: use this tool to get an instant, accurate estimate. The figures follow official GOV.UK guidance and every rate and threshold is kept up to date for 2026. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.