What is relevant life insurance?
Relevant life insurance is a type of life insurance offered by employers to employees as part of a workplace benefits package.
Key takeaways
Relevant life insurance is paid by employers for the benefits of employees and their families.
It offers a cash lump sum to an employee’s beneficiaries if they pass away.
Relevant life insurance offers certain tax benefits to employers.
What is relevant life insurance?
Relevant life insurance is a type of life insurance policy that a business takes out on behalf of its employees. It provides cover which is similar to a death-in-service benefit.
This type of insurance is usually more tax efficient than individual policies and is available to smaller companies not eligible for a group life scheme.
Relevant life insurance pays out a lump sum to an employee's beneficiaries when they die. It can also pay out if an employee is diagnosed with a terminal illness and has less than 12 months to live.
Relevant life insurance is not considered a taxable benefit-in-kind, allowing significant tax savings for both employer and employee.
Ideal candidates for this insurance are employees in smaller companies. These companies might not have enough members for a group life scheme. It is also suitable for high-earning directors who may wish to keep their life insurance separate from their pension pots. Previously this helped high earners avoid breaching the lifetime pension allowance; but this allowance was scrapped in April 2024 so it’s no longer an issue.
What does relevant life insurance cover?
Relevant life insurance is designed to support an employee’s family financially in the event that the employee dies while employed by the company. However, the death does not need to be at the workplace, in working hours, or job-related.
Relevant life insurance pays out a lump sum to the nominated beneficiaries on the death of the person named on the policy. The money can be used to settle outstanding debts, cover living expenses, or fund future needs like education costs. Some policies may also pay out if the policyholder is diagnosed with a terminal illness, with a life expectancy of less than 12 months.
As with all types of insurance policy, relevant life insurance comes with certain exclusions. Policies won’t normally pay out in cases of self-inflicted harm, suicide or recklessness. They also might not cover deaths caused by certain dangerous activities or hobbies. Insurers may also deny a claim where the death resulted from involvement in crime, war or terrorist activity.
Who pays for relevant life insurance?
Employers pay for relevant life insurance. It is used as part of a benefits packaged offered to staff, attracting talent. It can be more affordable for small companies than a group life insurance scheme.
Employers can tailor the amount of relevant life insurance cover offered based on their needs and budget. The lump sum payment the policy pays out is usually a multiple of an employee's salary. The maximum cover that an insurer will offer typically depends on each employee's age.
What are the benefits of relevant life insurance for employers?
Relevant life cover premiums are paid by the employer and offers firms certain tax benefits:
It can be offset against corporation tax as long as the policy forms part of the employee’s remuneration package.
There is no National Insurance on relevant life premiums.
Relevant life insurance can be a cost effective way to improve a firm’s benefits package, making the employer more attractive to both current and potential employees.
What are the benefits of relevant life insurance for employees?
Relevant life insurance is offered as a workplace perk, meaning it’s free to employees.
Having this cover in place can negate the need for individuals to buy their own life insurance cover, as it offers a financial payout to their family in the event of death.
How much does relevant life insurance cost?
The cost of relevant life insurance depends on several factors. These include:
The level of cover
More comprehensive cover will mean higher premiums.
Term of cover
Longer terms attract higher premiums.
Type of cover
With ‘level cover’ premiums stay the same, as does the payout amount. ‘Increasing cover ‘describes cover that rises in line with inflation – both the premiums and payout will increase over time.
Employee characteristics
Premiums will be higher for an older workforce, smokers, or when employees have a history of poor health.
Nature of your business
Some sectors, such as construction, are considered more high-risk than others.
How does relevant life insurance compare to other insurance types?
Relevant life insurance is most comparable with group life insurance – this type of cover is offered by employers to employees as a workplace benefit.
Group life schemes can be cost-effective for large employers, as premiums are lower due to group bargaining power. It also sometimes offers cover without medical screening, which can be a significant advantage for people with pre-existing conditions.
Coverage is often provided as a flat amount or a multiple of the employee’s salary.
However, your business will need a minimum of five employees to use a group life scheme. Relevant life insurance offers an alternative for smaller employers who want to offer a death-in-service benefit to staff.
What are some alternatives to relevant life insurance?
If you work for an employer that doesn’t offer group life cover, relevant life insurance or death-in-service benefit, then you may want to consider buying an individual life insurance policy. This will give your beneficiaries a cash lump sum if you pass away.
Unlike relevant life insurance, which is paid by employers, you will have to pay for life insurance yourself. The advantage of buying your own policy is having direct control over policy specifics such as the cover level and term. Unlike cover connected to your job, the policy will remain in place if you move jobs.
For employers, relevant life insurance will form part of the workplace benefits package offered to staff. Alongside group life cover, alternatives may include:
Group critical illness insurance
This insurance provides a lump sum if an employee is diagnosed with a critical illness such as cancer, heart attack, or stroke. The money can help employees cover medical expenses, loss of income, and other costs associated with their illnesses.
Group income protection
This product provides employees with a percentage of their salary if they are unable to work due to illness or injury.
Private health insurance
Provides employees with access to private medical treatment, typically covering hospital stays, outpatient care, and sometimes dental and optical care. This can reduce waiting times for medical treatment and offers more comprehensive care.
Death in service benefit
This is a benefit provided by employers where the employee's family or nominated beneficiaries receive a lump sum if the employee passes away while employed. It is often offered as part of a pension scheme or group life insurance policy.
