Risk warning: A relevant life policy is a form of life insurance and typically has no cash-in value at any time; cover will cease at the end of the policy term. If premiums are not maintained, the policy will lapse and cover will be lost. Tax treatment depends on individual circumstances and may change in the future. This article is for information only and does not constitute financial advice.
If you contract through your own personal service company (PSC), you’re a director and employee of that company in the eyes of HMRC, which means the same relevant life policy rules that apply to any limited company director apply to you too.
Why This Comes Up for Contractors Specifically
Many IT and professional contractors run a single-director PSC with no other employees, and often assume protection products designed for larger companies don’t apply to them. A relevant life policy doesn’t require a minimum number of employees, a one-person PSC qualifies in the same way as a larger company, provided you’re genuinely an employee or director drawing income through that company.
Does IR35 Status Affect Eligibility?
Your IR35 status affects how your contract income is taxed, but it doesn’t change whether your PSC can take out a relevant life policy on you as its director, what matters for eligibility is your employment relationship with your own company, not the IR35 status of the assignments you work on. That said, IR35 does affect how much company profit is available to fund premiums, which is worth factoring into your planning.
Setting It Up Through a Single-Director PSC
The process is the same as for any limited company: your company applies for the policy, nominates you as the person covered, and a discretionary trust is set up so any payout goes to your family rather than sitting as a company asset. Because you’re both the director and the employee being covered, you’ll typically be signing the application on behalf of the company as well as being the person underwritten.
What Contractors Often Compare It Against
Contractors weigh a relevant life policy against simply taking a higher dividend or salary and buying personal cover instead. The relevant life route keeps premiums out of your personal income tax and National Insurance calculation in a way that a dividend-funded personal policy wouldn’t, which is often the deciding factor, though the right choice depends on your company’s profit levels, your existing pension and protection arrangements, and your personal circumstances.
What Happens If You Stop Contracting
Because the policy belongs to your company rather than to you personally, cover normally ends if you close the PSC or stop being its director, this is different from a personal policy, which stays with you regardless of your work status. Some insurers allow a relevant life policy to be assigned to a new employer or converted to a personal policy if your contracting arrangement changes, but this depends on the provider and isn’t automatic, so it’s worth checking the terms before you rely on it long-term.
Next Steps
Because contractor company structures vary, some run through an umbrella for part of the year, others have irregular income, it’s worth getting advice tailored to how your PSC actually operates before applying.
A Note on Underwriting
Underwriting for a relevant life policy works the same way it would for personal cover, insurers assess your health, age, and the level of cover requested regardless of how your company is structured. Being a contractor with variable income doesn’t affect the underwriting process itself, only how much premium your company can comfortably sustain paying.
How This Compares to an Umbrella Company’s Death in Service Cover
Contractors who’ve previously worked through an umbrella company sometimes had access to a group death in service scheme as part of that arrangement. Moving to your own PSC usually means that cover ends, and a relevant life policy is the closest like-for-like replacement, it’s still paid for by the company, still sits outside your personal income tax and National Insurance, and still pays out via a trust rather than through your estate. The main difference is that a relevant life policy is set up individually for you rather than pooled across an umbrella’s workforce, so the level of cover and the beneficiaries are entirely your choice rather than a fixed scheme default. See our full comparison of relevant life policies and death in service cover for how the two stack up more broadly.
Common Mistakes Contractors Make When Setting This Up
The most frequent issue is applying for cover through the wrong entity, some contractors have both a dormant company and an active trading PSC, and the policy needs to sit with the company that actually employs them and pays their premiums. Another common mistake is not updating the trust’s beneficiaries after a change in personal circumstances, such as marriage or a new child, since the trust, not a will, determines who receives the payout. It’s also worth checking your PSC’s year-end accounts can comfortably absorb the premium as a business expense before committing, particularly if your contract income fluctuates between assignments. For the full mechanics of eligibility and setup, our key facts guide covers the underlying rules that apply to any limited company director, PSC owners included.
Reviewing Cover When Your Contract Rate Changes
Contract rates for IT and professional contractors can shift significantly between assignments, and it’s worth revisiting your relevant life policy whenever your company’s profit level changes materially rather than leaving it set at the original figure indefinitely. A policy sized around an earlier, lower-profit period may no longer reflect the level of protection your family would need, and an adviser can help work out what a sensible review point looks like for your specific situation.
Related guides
- Who Can Take Out a Relevant Life Policy?
- Tax Benefits of a Relevant Life Policy
- What Is a Relevant Life Policy? A Plain English Guide
- How to Set Up a Relevant Life Policy: Step by Step
- Relevant Life Policy vs Death in Service
- Relevant Life Policy: The Key Facts
- income protection built for contractors
- Speak to an Adviser