Glossary · UK
What is Relevant Life Policy?
An employer-funded term life policy held in trust for an employee's family, providing tax-efficient death benefit outside the pension annual allowance.
Full Definition
A relevant life policy (RLP) is a term life insurance policy arranged and paid for by an employer on the life of an employee (including a director) for the benefit of the employee's family or dependants, held in a discretionary trust. The policy provides a tax-efficient death-in-service lump sum benefit that sits entirely outside the pension annual allowance and lifetime allowance framework. Key tax advantages make RLPs particularly attractive: employer premiums are generally a deductible business expense and are not a taxable P11D benefit for the employee; the benefit is paid free of income tax and National Insurance because it is paid to the trust rather than directly to the employee; the benefit does not count against the employee's pension annual allowance (GBP 60,000 for 2026/27) or interact with any residual lifetime allowance protections; and if properly structured with a discretionary trust, the payout should fall outside the employee's estate for IHT purposes. RLPs are particularly useful for company directors who have already used their pension annual allowance and want additional life cover without further pension tax complications, and for employees of small businesses without group death-in-service schemes. Cover is typically limited to 25 times the employee's total remuneration package. The policy must genuinely be for the benefit of the employee's family rather than for the company's own financial benefit -- if the latter, it would be a key person insurance policy with materially different tax treatment. An appropriate discretionary trust must be put in place at outset to secure the IHT and income tax advantages. The trust deed should name the potential class of beneficiaries (typically family members and dependants) broadly to preserve flexibility for the trustees.