Protecting Personnel
Written by Check Financial · 4 min read
The short answer
Your business can pay for life insurance and income protection for its directors and employees. Relevant life cover pays a lump sum to the person's family if they die, and executive income protection helps the business keep paying their salary if they're off sick long term.
Who It's For
Company-paid cover suits limited companies that want to look after their people. It is often worth considering when:
- You're a director and would rather the company paid for your life insurance than pay for it personally.
- Your business is too small for a group life scheme but wants to offer death-in-service benefit.
- You want to keep paying a key employee's salary if they're off sick long term.
- You want benefits that help you attract and keep good people.
It isn't for everyone. Relevant life cover is for employees and salaried directors of limited companies. It isn't available to sole traders, partners in a partnership or members of an LLP.
How It Works
Relevant Life Cover
- The company takes out a policy on the life of a director or employee, and pays the premiums.
- The policy is written in trust from the start, for the person's family or other beneficiaries.
- If they die during the term, the insurer pays the lump sum to the trustees for their family.
Executive Income Protection
- The company takes out a policy for a director or employee, and pays the premiums.
- If they can't work because of illness or injury, after an agreed deferred period, the insurer pays a monthly benefit to the company.
- The company uses it to keep paying their salary, and certain employer costs, while they recover.
For larger teams, group life and group income protection schemes cover many employees under one policy. We can explain these too.
How Much Cover, What It Costs and Tax
How much cover. Relevant life cover is usually based on a multiple of the person's salary and benefits, within limits insurers set by age. Executive income protection is based on a share of their salary and some employer costs.
What it costs. The price depends mainly on each person's age, health, occupation and smoking status, the amount of cover and the length of the policy.
Tax. Relevant life cover can be tax-efficient. In many cases, premiums can be treated as a business expense and aren't a taxable benefit for the employee. The payout from the trust is usually free of income tax. With executive income protection, the business usually treats premiums as an expense, and the benefit it receives is taxed as business income. We'll explain the options, and your accountant should confirm the treatment for your business.
What It Doesn't Do
- Relevant life cover doesn't pay the business. It pays the person's family. To protect the business itself, see key person cover.
- Relevant life cover usually doesn't include critical illness cover.
- It isn't available to sole traders or partners. They need personal cover.
- Executive income protection doesn't pay the employee directly. It pays the company, which then pays their salary.
Real Scenario
Example scenario, not a real client
Death-in-Service Cover for a Small Company
A company with two directors and four employees has no death-in-service benefit and is too small for a group scheme.
Outcome: The company takes out relevant life cover for both directors, paid by the business and written in trust for their families, and is looking at cover for its employees next.
Common Questions
Can I have relevant life cover as a director?+
Does it count towards my pension allowances?+
What happens if the person leaves the company?+
Is this the same as key person cover?+
Can I cover my whole team?+
Related Guides
Starting a Business or Going Self-Employed?
The protection gaps most people miss when they leave employment, and how to plug them.
Read guide →Key Person Cover
Read guide →Protecting Your Business If the Worst Happens
Business protection explained, key person cover, shareholder protection, relevant life and loan protection. What every business owner should consider.
Read guide →This guide is general information, not personal advice. Check Financial Ltd is an appointed representative of Capital Protect Ltd, authorised and regulated by the Financial Conduct Authority.