A relevant life policy is a useful tool for Ltd company directors and business owners. It provides life cover that sits outside your personal estate, potentially saving inheritance tax for your dependants. But what happens when circumstances change? Whether you’re leaving your company, facing insolvency, or switching business structure, your policy doesn’t automatically disappear. Understanding your options is crucial.
Portability: Can You Take Your Policy With You?
When you leave a company, the most straightforward option is to check whether your relevant life policy is portable. This means you can transfer the cover to a new employer or continue it in your personal name.
Portability depends on how your policy was set up. Some policies are written to allow this transfer without requiring new underwriting or a fresh medical check. This is valuable because it means you keep your existing cover without facing new health questions or potentially higher premiums based on your current health status.
However, not all relevant life policies are portable. You need to check your policy documents or contact your insurer directly. Ask them specifically whether your cover can be transferred if you leave the company. If it can, ask what steps you need to take and what timescale applies. Some insurers require notification within a set period, such as 30 days of leaving employment.
If your policy is portable, transferring it is often simpler and cheaper than arranging new cover elsewhere. You avoid underwriting delays and you maintain continuity of cover, which matters if you have any health changes between leaving one job and starting another.
What Happens if Your Company Becomes Insolvent?
Company insolvency is a serious situation, and it affects your relevant life policy in specific ways.
If your company is insolvent, it may struggle to pay the policy premiums. The insurer will typically send payment reminders, and if premiums remain unpaid, your policy will lapse. Once a policy lapses, you lose the cover. Restarting it later usually requires new underwriting, which could mean additional health questions and potentially higher premiums or even rejection if your health has changed.
The timing matters here. If you’re aware that insolvency is likely, it’s worth contacting your insurer as soon as possible. Some insurers may allow you to take over premium payments personally to keep the cover alive, even if the company cannot pay. This is not guaranteed, but it’s worth asking about. You might also explore whether the policy can be transferred to your name before the company enters formal insolvency proceedings.
If the company goes into administration or liquidation, the insurer is unlikely to continue accepting the company as the policyholder. At that point, your options narrow. You may be able to continue the policy personally by taking on the premium payments yourself, but this depends on the insurer’s rules and your circumstances at the time.
Continuing Cover in Your Personal Name
If your relevant life policy is not portable, or if circumstances mean you need to arrange new cover, you can take out a personal life insurance policy. This is different from a relevant life policy but serves a similar purpose.
A personal life insurance policy is owned and paid for by you as an individual. It’s not connected to any company. The main difference is that the proceeds form part of your personal estate and may be subject to inheritance tax, whereas a relevant life policy sits outside your estate. However, personal life insurance still provides valuable protection for your family.
When you apply for a personal policy, you will go through underwriting. The insurer will ask health questions and may request medical information. This is why transferring a portable policy is often preferable: you avoid this process. However, if you need new cover, applying promptly is important. The longer you wait, the older you are when you apply, and premiums typically increase with age.
You can arrange a personal policy with your existing insurer or shop around with other providers. Some insurers specialise in cover for self-employed people and business owners, which may be relevant to your situation.
Changing from Ltd Company to Sole Trader
If you’re moving from running a Ltd company to operating as a sole trader, your business structure changes significantly. This affects how you can use life insurance.
A relevant life policy is specifically designed for Ltd companies. Once you become a sole trader, you can no longer use a relevant life policy in the same way because there is no separate company entity to own it. However, you can switch to a personal life insurance policy.
If you currently have a relevant life policy in your Ltd company, check whether it’s portable before you change structure. If it is, you may be able to transfer it to your personal name. This avoids the need for new underwriting. If it’s not portable, or if the insurer won’t allow a transfer during a business structure change, you’ll need to arrange a new personal policy.
When you transition to sole trading, it’s also worth reviewing how much cover you need. As a sole trader, you have different tax considerations and no corporate structure to protect. A financial adviser can help you work out appropriate cover levels for your circumstances.
What You Should Do Now
If you’re facing any of these situations, start by reviewing your policy documents. Look for information about portability, what happens if premiums aren’t paid, and any time limits for making changes. Contact your insurer directly if the documents don’t make things clear.
Don’t wait until you’re in crisis. If you know you’re leaving your company, or if insolvency is a possibility, act early. Early action gives you more options and more time to arrange alternative cover if needed.
Keep records of all correspondence with your insurer, especially if you’re requesting a transfer or discussing payment arrangements. This protects you if disputes arise later.
Points to be aware of
A few points are worth keeping in mind. Portability, notification periods and premium takeover rules vary from insurer to insurer, so nothing here should be assumed to apply to your own policy until you have confirmed it in writing with your provider. A policy that has lapsed cannot always be reinstated, and any new cover will depend on your age and health at the time you apply. The tax treatment of relevant life and personal life cover depends on your individual circumstances and on current legislation, both of which can change in the future. If insolvency or a change of business structure is likely, take advice early, as options are usually far more limited once formal proceedings have begun.
This article is for information only and does not constitute financial advice. For advice tailored to your circumstances, speak to a qualified financial adviser.
Damian Youell
Whole of Market
Business Protection
560+ Reviews
Damian is the founder of NeedingAdvice.co.uk and an FCA-regulated protection specialist. He advises UK company directors, contractors, and business owners on structuring tax-efficient Relevant Life Policies, Key Person Insurance, and Shareholder Protection.
Providing independent, whole-of-market guidance, Damian ensures life cover arrangements comply with HMRC discretionary trust rules, qualify for full Corporation Tax relief, and sit outside personal estate calculations.