For many small business directors, personal protection is often the last thing on the list. Time, cash flow, and daily operational pressures take priority — until an accountant or adviser mentions something called Relevant Life Insurance.

In 2025, this quietly powerful policy remains one of the most tax-efficient, compliant, and flexible ways for company owners to provide life cover. It’s particularly beneficial for directors who pay themselves through a mix of salary and dividends and who want to protect their families without drawing additional income.

Despite its advantages, confusion still surrounds how Relevant Life Insurance works and who it’s for. Some directors mistakenly assume it’s only suitable for large employers, while others don’t realise how much tax they could save compared to paying for personal cover out of post-tax income.

At Willow Private Finance, we specialise in helping directors structure these policies correctly — ensuring the premiums are allowable, the trust is properly established, and the cover delivers both peace of mind and financial efficiency.

This guide explains how Relevant Life Insurance works for small business directors in 2025, what to watch out for, and why now is the ideal time to integrate it into your financial plan.

For a deeper look at how this policy compares to other business protection options, you can also read our related article Relevant Life vs Key Person Insurance in 2025: Which Is Right for You?.

The Market Context in 2025

The landscape for small limited companies continues to evolve. Corporation tax changes in recent years, coupled with shifting rules around dividend taxation and allowable business expenses, have made directors far more conscious of how they extract value from their companies.

Against that backdrop, Relevant Life Insurance has become increasingly attractive. It’s one of the few remaining ways for directors to fund life cover through the company, with full tax efficiency and no personal income tax liability.

At the same time, insurers have adapted policies to make them more flexible for small businesses, with simpler trust templates, wider eligibility for directors, and better integration with modern accounting practices.

In short, 2025 offers small business owners a rare opportunity: to protect their families in a compliant, cost-effective way while reducing corporation tax.

What Relevant Life Insurance Actually Is

Relevant Life Insurance is a life policy paid for by your company that provides a lump sum to your chosen beneficiaries if you die or are diagnosed with a terminal illness while employed by the business. The key feature — and the reason it’s so valuable — is that the benefit is paid tax-free through a trust, sitting outside your estate for inheritance tax purposes.

The company pays the premiums, which are typically allowable against corporation tax. Because the policy is deemed an employee benefit, there’s no P11D benefit-in-kind for the director, meaning you don’t pay personal income tax on the premiums.

Effectively, Relevant Life Insurance allows you to take out significant personal protection without having to pay for it out of your own pocket or through taxed income.

For small limited company owners — including one-person setups — that can translate into savings of thousands of pounds per year when compared to personally funded cover.

Why It Matters for Small Business Directors

Many directors assume personal life insurance is their only option. But when premiums are paid from post-tax income, the total cost can be much higher than it appears.

For example, a director paying 40% income tax, plus National Insurance and dividend tax, might have to draw £200–£250 gross from the company just to fund a £100 premium.

With a Relevant Life policy, the company pays the premium directly. The payment is treated as an allowable business expense, reducing taxable profits, and there’s no personal liability. Over time, the difference in net cost can be dramatic — in some cases, a 40–50% saving.

This efficiency matters most for directors whose income comes through a mix of salary and dividends, where every marginal gain in extraction strategy counts. A Relevant Life plan effectively converts what would have been post-tax expenditure into a fully deductible corporate cost, all while providing protection for your family.

Who Qualifies for Relevant Life Cover

One of the biggest myths is that only larger employers can set up Relevant Life cover. In fact, it’s specifically designed for small limited companies that don’t have a group life scheme in place.

You must be:

• An employee or director of a UK-registered company (including your own).
• A UK resident.
• Aged typically between 18 and 73, depending on the insurer.

The company must pay the premiums, and the policy must be written in a trust. Sole traders and partnerships cannot usually take out a Relevant Life plan, as they are not separate legal entities — but directors of limited companies, including one-person companies, absolutely can.

At Willow, we often work with directors who employ no staff other than themselves and their spouse. These clients typically qualify without issue, provided the trust and employer relationship are set up correctly.

How the Tax Advantages Work

The structure of a Relevant Life plan is what makes it so efficient.

Because the company pays the premium, it’s treated as an employer business expense, reducing the corporation tax bill. For 2025, with corporation tax rates at up to 25% for many small companies, that deduction is meaningful.

Meanwhile, because the cover is provided as a benefit to the employee, and not as personal income, there’s no National Insurance, dividend, or income tax liability for the director.

Finally, the benefit — the payout itself — is made to a discretionary trust established for the director’s chosen beneficiaries. This keeps it outside their estate for inheritance tax, ensuring the money passes directly and efficiently to family members.

When structured correctly, this makes Relevant Life Insurance one of the most tax-advantaged ways to provide personal life cover available to directors today.

Trusts and Policy Structure

Every Relevant Life policy must be written under a trust from the start. This is not optional — it’s the legal mechanism that keeps the payout tax-free and separate from the company’s assets.

The trust names the employee or director as the “life assured” and their chosen family members or dependents as beneficiaries. On death, the insurer pays the proceeds to the trustees, who then distribute the funds according to the trust deed.

Because the company owns the policy but the trust receives the proceeds, the payout is not classed as a corporate asset. This means it cannot be claimed by creditors or form part of business equity if the company winds up.

Willow Private Finance works directly with insurers and trust administrators to ensure this process is handled correctly, removing the complexity for directors and avoiding the compliance pitfalls that can arise when policies are set up incorrectly.

Aligning with Broader Financial Planning

For many small business owners, Relevant Life Insurance isn’t just about life cover — it’s about smart financial design.

When integrated properly, it can sit alongside pension contributions, shareholder protection, and other business insurance to form part of a wider director remuneration and succession strategy.

For example, a director might:

• Use company funds to pay for a Relevant Life policy (tax-efficient family protection).
• Contribute to a company pension (tax-efficient long-term saving).
• Maintain Key Person Insurance (business continuity protection).

Together, these steps create a holistic framework that maximises corporate allowances while reducing personal tax burden — all while ensuring family and business continuity are secured.

To see how these pieces fit together, our blog The Tax Benefits of Relevant Life Insurance for Business Owners expands on the advantages of combining multiple tax-efficient protection tools.

Common Pitfalls and How to Avoid Them

The most common mistakes directors make with Relevant Life Insurance are not structural, but procedural. Some forget to execute the trust document before the policy begins. Others name the wrong entity as the owner, leading to potential confusion about who holds the legal rights.

A subtler but equally important error involves failing to review the policy when circumstances change — for instance, if the director sells the company, retires, or moves overseas. Without a review, the trust could remain tied to the former employer, creating delays or eligibility issues.

Willow Private Finance mitigates these risks by overseeing every stage — from trust setup and beneficiary designation to annual policy review and compliance check. We ensure that policies evolve as clients’ businesses and personal lives do.

The 2025 Outlook

As the UK government continues to focus on tax reform and corporate transparency, directors should expect more scrutiny around business-funded benefits. That said, Relevant Life remains firmly supported by HMRC when structured correctly.

Insurers are also evolving. Many are introducing digital trust platforms, streamlined director eligibility checks, and flexible benefit structures that allow cover to adapt as business value grows. For small company owners who want efficient, compliant protection, 2025 offers the most accessible landscape yet.

In short, Relevant Life Insurance is no longer an optional perk — it’s a strategic financial tool that every small business director should consider part of their essential planning.

Frequently Asked Questions

Q1: Can a one-person limited company take out Relevant Life Insurance?
A: Yes. As long as the director is classed as an employee of their own company, they are eligible to be both policyholder and life assured.

Q2: Is Relevant Life Insurance tax-deductible for small companies?
A: Typically yes. Premiums are usually treated as a legitimate business expense, reducing corporation tax while avoiding personal benefit-in-kind charges.

Q3: What happens to the policy if I close or sell my company?
A: You may be able to transfer ownership to a new employer or personal plan, but this must be reviewed carefully to retain the tax advantages.

Q4: Is the payout subject to inheritance tax?
A: No, when written correctly under trust, the benefit is paid outside the insured’s estate and passes tax-free to the named beneficiaries.



Q5: Can Relevant Life include critical illness cover?
A: Not typically. Relevant Life covers death and terminal illness only. Critical illness is usually arranged as a separate policy.

How Willow Private Finance Can Help

At Willow Private Finance, we help directors and business owners design efficient, compliant protection strategies that do more than just pay out in the worst-case scenario. They integrate intelligently into your tax and wealth planning, ensuring your company’s structure works as hard for your family as you do.

We have deep experience advising limited company directors, contractors, and entrepreneurs across the UK and internationally. Whether you’re arranging your first Relevant Life policy or reviewing an existing one, our whole-of-market access ensures you secure the best structure, price, and trust setup for your needs.

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