Why directors need to think about life insurance differently
As a company director, you have options that employed individuals don't. Instead of paying for life insurance personally from post-tax income, you can arrange cover through your limited company using a relevant life policy — saving significantly on tax.
Options available to directors
- Relevant life policy — Arranged by the company, premiums are a business expense. Tax-efficient for both the company and the individual.
- Group life scheme — If you have multiple employees, a group scheme may offer better value.
- Personal life insurance — Paid personally from after-tax income. Simple but less tax-efficient.
- Shareholder protection — Protects your business partners if you die.
How much life insurance does a director need?
Most financial planners recommend a minimum of 10 times annual salary for people with dependants and a mortgage. Directors should also consider the impact of their death on the business, and whether shareholder or key person cover is needed separately.
Can a relevant life policy cover critical illness?
Some insurers allow critical illness cover to be added to a relevant life policy. However, the tax treatment becomes more complex, and professional advice is recommended.
Writing the policy in trust
Relevant life policies must be written in a discretionary trust. This means the payout goes directly to your beneficiaries — bypassing your estate, avoiding inheritance tax, and avoiding probate delays.
Frequently Asked Questions
Yes. Many directors hold both a relevant life policy (through the company) and a personal policy. The two work independently.
HMRC allows up to a multiple of total remuneration (typically 15–25 times salary and benefits). Individual insurers set their own maximum limits.
No — provided the policy is structured correctly and written in a discretionary trust, the payout is not subject to corporation tax.