Relevant Life Insurance has rapidly become one of the most tax-efficient protection options for UK company directors. It allows businesses to fund life cover through the company, claim corporation tax relief, and pass benefits to families completely free from inheritance tax — all within HMRC rules.

Yet despite its growing popularity, misunderstandings still persist. Many directors, accountants, and even some advisers continue to confuse Relevant Life with group schemes, personal life insurance, or business protection. Others assume it’s too complex, too niche, or not compliant.

In 2025, these misconceptions are costing business owners time, tax efficiency, and peace of mind.

At Willow Private Finance, we work daily with directors and professionals who initially thought Relevant Life “didn’t apply to them” — until they discovered how much it could save in both tax and long-term financial planning.

This article debunks the most common myths surrounding Relevant Life Insurance and clarifies why, when structured correctly, it remains one of the most powerful protection strategies available today.

Myth 1: “It’s Only for Large Companies with Staff”

This is one of the most persistent misconceptions — and it couldn’t be further from the truth.

Relevant Life Insurance was specifically designed for small and medium-sized businesses, including single-director limited companies.

Even if you are the only employee, you can still qualify as long as:

• The business is a UK-registered limited company.
• You receive remuneration (salary/dividends).
• The company pays the premium.

This makes it perfect for consultants, contractors, family businesses, and professionals who don’t have enough employees to justify a group life scheme.

At Willow, we arrange policies for everything from one-person consultancies to small teams of directors — all receiving the same corporate and personal benefits as a large company would.

Myth 2: “It’s Just Like Personal Life Insurance”

While both policies provide financial protection for loved ones, the funding and tax treatment are entirely different.

Personal life insurance is paid from post-tax income. You can’t claim the cost against corporation tax, and the payout may fall into your estate for inheritance tax.

Relevant Life Insurance, however:

• Is funded by the company using pre-tax money.
• Is not a benefit-in-kind, so there’s no personal tax.
• Is held in trust, keeping proceeds outside the estate.

That difference makes it up to 40–50% more cost-efficient for higher-rate taxpayers. What feels like a similar monthly premium delivers a dramatically different after-tax outcome.

Myth 3: “It’s a Complicated Tax Loophole”

Some directors assume Relevant Life sits in a grey area of tax law — perhaps too good to be true.

In reality, HMRC provides clear, written guidance confirming that Relevant Life policies are legitimate and meet the “wholly and exclusively for business purposes” test, as long as they’re structured correctly.

That means:

• The company must be the policyholder.
• The insured person must be an employee or director.
• The policy must be written into trust for beneficiaries.

When these conditions are met, the tax advantages are entirely compliant. It’s not a loophole — it’s a purpose-built solution that’s been on the market for over a decade.

At Willow Private Finance, we ensure every case meets HMRC and FCA standards, liaising directly with accountants to document the company’s position correctly.

Myth 4: “The Policy Belongs to the Company”

Technically, yes — the company owns the policy and pays the premium. But thanks to the trust, the benefit never goes to the company.

Instead, the payout goes directly to the trust, which then distributes it to your chosen beneficiaries — typically family members or dependants.

This prevents the payout from being treated as a company asset, avoids inheritance tax, and ensures immediate access for your family.

In short: your company funds the policy, but your family receives the benefit.

Myth 5: “You Can’t Use It for Estate Planning”

This is another major misunderstanding.

Because the payout is held in a discretionary trust, it automatically sits outside your estate, meaning it’s not subject to inheritance tax.

That makes Relevant Life an ideal estate planning tool. It provides instant, tax-free liquidity to your family, ensuring they can meet immediate expenses — or preserve property and business assets — without waiting for probate.

When integrated with wills and shareholder agreements, it becomes a cornerstone of a complete succession strategy.

Myth 6: “You Need Multiple Directors or Staff”

Even if you’re a sole director, you qualify. The only key rule is that the company — not you personally — takes out and pays for the policy.

If your spouse or other family members are employed by the business, each can have their own policy. The company can claim tax relief on every premium individually.

It’s a flexible, scalable structure that grows with your company, not one limited by headcount.

Myth 7: “It’s Only for Younger Directors”

Life cover has no age bias. While premiums increase slightly with age, the efficiency of a Relevant Life policy means it remains cost-effective even for directors in their 50s or 60s.

For older directors, it can play a dual role — offering family protection now and estate liquidity later, ensuring loved ones aren’t forced to liquidate assets to cover tax.

At Willow, we regularly arrange cover for directors across all age groups, tailoring the structure to their family, company, and estate size.

Myth 8: “The Policy Ends If I Close My Company”

Relevant Life is remarkably flexible. If you close or sell your company, you can:

• Transfer the policy to a new employer.
• Reassign it personally and continue it as private cover.

This portability ensures your protection follows you — not your business.

Our advisers manage these transitions smoothly, ensuring continuity and compliance during changes in employment, restructuring, or incorporation.

Myth 9: “It’s Too Expensive or Not Worth It”

When you factor in the tax benefits, Relevant Life is often cheaper than a personal policy offering equivalent cover.

Here’s why:

• The company claims corporation tax relief on premiums.
• You pay no income tax or National Insurance on the benefit.
• The payout avoids inheritance tax, maximising real family value.

For many directors, the net cost reduction exceeds 40% compared with paying personally. Over a 10-year policy term, that saving can run into thousands.

Myth 10: “It Replaces Other Business Protection”

Relevant Life is for personal protection, not corporate continuity.

It ensures your family receives a payout if you die — but it doesn’t protect the business from losing income or key personnel.

That’s why advisers often recommend combining it with:

• Key Person Insurance – to protect company revenue.
• Shareholder Protection – to manage ownership succession.
• Executive Income Protection – to safeguard ongoing earnings.

At Willow Private Finance, we design cohesive protection portfolios where each policy serves a distinct, complementary purpose.

Why These Misconceptions Persist

Many myths stem from the fact that Relevant Life doesn’t fit neatly into a single financial category. It’s both personal and corporate, both protective and tax-efficient — and that blurs the lines.

Accountants tend to view it through the tax lens; brokers through the protection lens; solicitors through the trust structure.

Only when all three perspectives align — as they do in Willow’s advisory model — does the full picture become clear.

That’s why, in 2025, education around Relevant Life remains vital. Directors who understand it properly often wonder why they didn’t set it up years earlier.

The 2025 Outlook

In a tightening fiscal climate, directors are under increasing pressure to extract value efficiently while protecting their families and assets.

Relevant Life Insurance remains one of the few HMRC-approved tools that accomplishes both — saving tax while safeguarding wealth.

With corporation tax thresholds, dividend restrictions, and inheritance tax all in focus, this simple, compliant structure has never been more relevant.

As more directors and accountants embrace it, the myths are finally giving way to informed, proactive planning.

How Willow Private Finance Can Help

At Willow Private Finance, we specialise in demystifying complex financial tools like Relevant Life and integrating them into clear, compliant strategies for directors and professionals.

Our advisers handle every detail — from policy setup and trust execution to liaising with your accountant and insurer. We ensure the structure is right from day one, optimised for your tax position, family goals, and long-term estate plan.

We’re here to help you replace confusion with clarity — and structure protection that truly works for you.

Frequently Asked Questions

Q1: Can I have Relevant Life cover as a sole director?
A: Yes. Single-director limited companies fully qualify, provided the director is an employee and the company pays the premium.

Q2: Does HMRC approve Relevant Life?
A: Yes, when structured correctly. It meets the “wholly and exclusively” rule for business expenses and remains fully compliant.

Q3: Is it cheaper than personal life insurance?
A: Usually. The combination of corporation tax relief and no personal tax makes it up to 40% more cost-effective.

Q4: What happens if I stop trading?
A: You can assign the policy to yourself personally or transfer it to a new employer, maintaining continuity of cover.



Q5: Does it cover critical illness or income protection?
A: No. It covers death and terminal illness only, but can be paired with separate policies for comprehensive protection.

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