How to Set Up a Relevant Life Policy: Step by Step

Setting up a relevant life policy involves a handful of steps beyond a normal personal life insurance application, mainly because the company is the applicant and a trust needs to be put in place.

1. Confirm you’re eligible

You need to be a director or employee of a UK limited company. Sole traders and equity partners in traditional partnerships cannot take one out, because there is no separate employer to own the policy.

2. Work out how much cover you need

Most people base this on what their family would need to replace their income, cover a mortgage, and meet ongoing costs if the worst happened. Maximum cover available is usually linked to a multiple of your total remuneration, so your salary and dividend history matters here.

3. Compare providers

Not every insurer offers relevant life policies on the same terms, and underwriting, price and trust documentation vary. A whole-of-market adviser can compare options from every major UK provider rather than a single insurer’s own terms.

4. Apply, with the company as the policyholder

The application is made in the company’s name, on the life of the director or employee. You’ll be asked the usual medical and lifestyle questions used for any life insurance underwriting.

5. Set up the discretionary trust

This is normally done using the insurer’s standard trust documentation at the same time as the application. The trust needs to be signed correctly and the trustees and beneficiaries recorded, this step is what keeps the payout outside your estate.

6. The company pays the premiums

Once the policy is live, premiums are paid by the company directly to the insurer, typically by direct debit, and are usually treated as a deductible business expense.

7. Review periodically

Cover needs change, a pay rise, a new child, or paying off a mortgage are all reasons to revisit the level of cover. It’s also worth checking your beneficiary nomination after any major life change.

Where advice fits in

Because the trust and underwriting steps need to be done correctly to get the tax treatment, most directors set this up through a whole-of-market financial adviser rather than applying direct.

How long does it take?

Most relevant life policies can be underwritten and put on cover within one to a few weeks, provided the health and lifestyle questions are straightforward. Cases needing a medical, GP report, or more detailed underwriting can take longer, and setting up the discretionary trust correctly alongside the application is what usually determines the overall timeline rather than the insurer’s paperwork.

What documents will you need?

You’ll typically need proof of your remuneration (salary and dividends), basic company details, and to complete the insurer’s standard trust documentation naming your trustees and beneficiaries. An adviser can usually gather most of this on your behalf.

Who owns the policy, and why that matters

The company is the policyholder and pays the premiums, but the person insured is the director or employee. That split is the whole point of the structure: because the employer owns and pays for the cover as an employee benefit, the premiums are not treated as a benefit in kind on the individual, and they are generally allowable as a business expense for corporation tax purposes provided the arrangement is wholly and exclusively for the purposes of the trade. It also means the policy is not an asset of the individual, which is what keeps the eventual payout outside their estate for inheritance tax purposes once the trust is in place. If the company were to pay premiums on a policy the individual personally owned, none of that treatment would apply, the payment would simply be additional remuneration.

The trust step, in more detail

The discretionary trust is the part most often rushed, and it is the part that determines whether the tax treatment holds. Signing the trust deed at the same time as the application is the standard approach, because a policy written in trust from outset avoids the questions that arise when a policy is placed into trust later. Trustees are normally the company and one or more individuals; the beneficiaries are typically the insured person’s family, named in a nomination the individual can update later. HMRC’s periodic charge rules do apply to relevant property trusts, but for a term assurance policy with no surrender value the value held in trust is usually negligible between claim events, which is why these arrangements rarely generate a charge in practice. Getting the deed executed correctly, signed, dated, and witnessed where required, matters more than the choice of trustees.

What can go wrong

The most common problems are structural rather than medical: applying in the individual’s name instead of the company’s, leaving the trust unsigned, naming beneficiaries in a way that falls outside the permitted class, or arranging cover for someone who is not actually an employee or director of the company. A relevant life policy also cannot include a critical illness or surrender element and must end before the insured person’s 75th birthday to stay within the qualifying rules. Each of these is straightforward to get right at application stage and awkward to unpick afterwards, which is the main practical argument for setting the policy up through an adviser who arranges these regularly.

Related guides

This article is for information only and does not constitute financial advice. To find out if a relevant life policy is right for your circumstances, speak to a qualified financial adviser.