Tax Deductible Life Insurance

Tax deductible life insurance is adopted by business owners and contractors who have taken out a relevant life policy to cover them for death in service and save money on their tax bill at the same time. Premiums paid through a personal account are not tax deductible, because they are seen as a personal expense, therefore, it is extremely beneficial for employees, particularly those of a high calibre to look into relevant life cover.

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Tax Deductible Life Insurance

Benefits of tax deductible life insurance

Tax deductible life insurance has benefits for both the employer and employee in question, which is why it is an attractive proposition for those who qualify.

For the employee, benefits include:

  • Not having to pay national insurance on the policy payments.
  • If you do die, or suffer a terminal illness, your family are given a lump sum to support them in the absence of a main earner.
  • Policy payments are not seen as a benefit in kind.
  • Your pension is not affected when you take out a policy.

For the employer, benefits include:

  • Not having to pay corporation tax as long as the premium is ‘wholly and exclusively for the purposes of the business*’.
  • As is the case with the employee, no national insurance needs to be paid on the policy.

Are Relevant Life Policies A Benefit In Kind?

You may assume that because relevant life policies are put through the business, they are a benefit in kind, just like a company car is but, they aren’t. This is because the policy is providing death benefits, which isn’t subject to tax.  

Trusts & Relevant Life Cover

A relevant life policy should be put into a trust to benefit the employee’s family, this will help mitigate inheritance tax and avoid probate so the money goes to the right people/person. If the employee changes employers, the new employer should take over the policy payments and ensure it still remains in the original declaration of trust.

What Will I Save?

For someone who is earning a high salary and is therefore a higher rate taxpayer, they can save around 49% by paying their life insurance through a business on a relevant life plan. Basic rate taxpayers still benefit, they will make a saving of around 36%.

There are so many benefits to tax deductible life insurance but not everyone is aware of it. Until recently, you were only able to take out relevant life policies through a business if the company had group life insurance, which was only possible if the company wanted to insure more than 10 employees.

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