Tax efficiency: One of the most cost-effective ways to fund life cover compared with a personal policy from taxed income.

Flexible for any size: Suits sole directors and small businesses that can't access group schemes.

Valuable benefit: Provides employees and directors with substantial life protection.

Estate friendly: Held in trust so benefits pass quickly and outside the estate.

Relevant life cover is a tax-efficient life insurance policy arranged by an employer for the benefit of an individual employee or director and their family. It works in a similar way to a death in service scheme: if the insured person dies or is diagnosed with a terminal illness while employed, a lump sum is paid to their beneficiaries. The key difference from a group scheme is that relevant life is an individual policy, making it the ideal solution for small businesses, sole directors, or companies that want to offer enhanced cover to specific individuals.

The policy is held under a discretionary trust, which means the benefit falls outside the employee's estate: keeping it free from inheritance tax and ensuring it reaches the family quickly, without the delays of probate.

Relevant life cover offers compelling tax efficiency compared with a director or employee funding the same level of life insurance personally from post-tax income. Premiums paid by the company are usually treated as an allowable business expense and are not subject to National Insurance. The benefit is not treated as a P11D benefit in kind for the employee, and because it is held under a discretionary trust, the payout is free from inheritance tax for the beneficiaries.

For a company director in particular, the savings compared with a personally-owned policy can be substantial over the term of the cover. Our advisers will walk you through the numbers so you can see the full picture before you commit.

Relevant life cover is especially well-suited to small and medium-sized businesses that do not have enough employees to set up a full group life scheme, or to company directors who want to arrange substantial life cover in a tax-efficient way. It can also be used to top up existing death in service benefits for higher earners whose cover needs exceed what the group scheme provides. Baker Hudson Health will compare policies from leading insurers to find the right level and structure of cover for your situation.

Assume a company director wants £500,000 of life cover and pays corporation tax at 25%. A relevant life policy premium of £100/month is paid by the company. The premium is an allowable business expense: saving £25/month in corporation tax. Compared to a personal policy funded from dividend income (taxed at 33.75% for a higher-rate taxpayer), the saving over 20 years is significant. Baker Hudson Health can model the exact saving for your situation.

Relevant life cover is most suitable for directors and employees of limited companies who want life cover arranged tax-efficiently. It is not available to sole traders or partnerships. The policy must be placed in a relevant life plan trust, which Baker Hudson Health arranges on your behalf. The trust structure ensures the death benefit is paid quickly to beneficiaries and falls outside the estate for IHT purposes.

Critical illness cover is not permitted under a relevant life plan: though a separate company-paid key person CI policy can be arranged alongside it. Baker Hudson Health will review your full protection needs as a director and design a package that covers all the bases tax-efficiently.