A guide to relevant life insurance plans

A relevant life policy is a form of life insurance cover that may be provided by your employer as part of a benefits package. It's designed to pay a lump sum if you die or are diagnosed with a terminal illness, while employed.

Amy Smith
Amy Smith
Updated 19 May 2020  | 3 min read

Key points

  • Relevant life insurance is a type of insurance employers offer their employees
  • It pays out a lump sum to your beneficiaries if you die, or if you’re diagnosed with a terminal illness, during your employment
  • Your employer pays the premiums and sets it up on your behalf
  • If you stop working for your employer, you lose the benefit
  • It differs from group life insurance - usually called death in service cover. Relevant life insurance tends to offer more cover and be more tax-efficient for high earners

What is relevant life insurance?

A relevant life insurance policy is a death in service benefit that your employer might offer. It’s paid for and set up by your employer. 

It pays out a tax-free lump sum if you die or are diagnosed with a terminal condition while you’re still employed by the company. 

How does relevant life insurance work?

Your employer will usually offer a lump sum that’s a multiple of your annual salary – for example, if you earned £20,000 per year, the lump sum could be anywhere between two and 12 times that amount. The payout will go to whoever you list as a beneficiary.

If your employment ends, the relevant life insurance benefit will end too. However, some companies allow you to transfer the benefit, so speak to your employer. 

Benefits of relevant life cover

For the employee For the employer
Provides peace of mind Tax efficient
Tax-free payout Great employee benefit – even for small businesses
Paid for by the employer Affordable cover

What's the difference between a relevant life plan and death in service benefits? 

Relevant life plans have a few differences to death in service benefits:

  • The amount of cover tends to be a lot higher than death in service, between two and 12 times an annual salary
  • You can tailor the cover to the individual, so it's not as blanket as death in service
  • They can be more tax-efficient for high-earning employees, as relevant life plans don't count towards the lifetime allowance. That's because, unlike a lot of group death in service schemes, relevant life plans are not part of a pension scheme
  • You don't need a huge amount of employees to set relevant life plans up, unlike group life insurance schemes - which also makes it a good option for sole traders

For that reason, relevant life plans can make a good addition to death in service cover for larger companies. And the better option for small or medium-sized businesses.