Is life insurance an allowable business expense?

There are a few life insurance options that can be secured through your company. The most common forms of protection include:

• Death in service
• Relevant life insurance
• Keyman insurance (key person)

Let’s look into these options and whether they are classified as a business expense...

Death in service

Death is service is a form of group life insurance and is typically a benefit offered to all employees within a company.

If an employee passes away during their service with an employer, a multiple of their salary will be paid out to their loved ones (for example, 3x their salary).

If an employee leaves their job, their death in service benefit won’t go with them and they’ll no longer be protected.

This can highlight the need for personal life cover, to ensure that loved ones are always protected no matter their circumstances.

At Reassured we can help you compare life insurance quotes from a range of top UK insurers, saving you time and money.

Death in service is typically considered a business expense, therefore the employer will not need to pay corporation tax on this benefit and employees won’t need to pay any additional tax for this benefit.

Unfortunately, at this present time, we aren’t able to arrange group life insurance, such as death in service, for our customers at Reassured.

Relevant life insurance

Not all businesses may be suited to a death in service scheme as they may not want to provide protection for all of their employees.

Instead of covering everyone in the business (like death in service benefit), a relevant life insurance policy will cover the life of one employee.

If you’re the director of a limited company, looking to secure life cover through your company, this form of life insurance will allow you to do so.

Typically, a relevant life insurance policy is classed as an allowable business expense and is tax-deductible.

A pay out from a relevant life insurance policy will be paid out to the insured’s loved ones upon their passing.

A relevant life insurance policy may also be used in place of a death in service scheme for smaller companies, as a way of providing a life cover benefit.

Unfortunately, this isn’t something we can compare for you at Reassured.

If looking to secure a relevant life insurance policy, some of the UK's leading providers offer this option (such as LV=, Legal & General and Royal London).

Keyman (or key person) insurance

Keyman insurance can be used to cover the lives of the most important members of staff (this could be the CEO, a top-performing employee or anyone who is essential to the financial success of the company).

With keyman insurance, as the policy is owned by the company, the pay out will be used to help the business with any financial repercussions that may arise as a result of the member of staff passing away.

This pay out can be used to help with any loss in profit.

A keyman insurance policy will often include critical illness cover, which will allow an early pay out if the insured member of staff falls ill and can’t work for a period of time.

For the policy to be a business expense, and therefore tax-deductible, it will need to meet certain criteria (usually being of benefit to the business and not an individual).

Keyman insurance is not something we provide at Reassured.

Company directors of limited companies are eligible for relevant life insurance.

Taking a policy out through your company, rather than through your own personal funds, can save you money on a policy.

The premiums will be paid for by the company as an allowable business expense, this means the company can claim corporation tax relief on the premiums paid and there’s also no need to pay national insurance.

As the policy will be written in trust, your loved ones won’t have to pay inheritance tax on the pay out.

Yes, some forms of life cover can be tax-deductible.

Typically these will be policies paid for by a company, such as relevant life insurance or keyman insurance.

Both relevant life insurance and keyman insurance can be tax-deductible as the policy will be classed as an allowable business expense.

A standard life insurance policy that you choose to take out for personal reasons and pay your own premiums for, won’t be tax-deductible.

What a business life insurance policy will be used for will depend on the type of policy taken out.

If taking out group life insurance, such as death in service, it’s likely this will form part of the employee benefits package offered by the company.

This type of benefit can be useful in creating a happy workforce.

Relevant life insurance can act as a benefit to those working in smaller businesses who won’t be suited to death in service.

Company directors can also use this type of life insurance as a business expense, helping them to save money on a policy.

Keyman (or key person) insurance will help to ensure that the business will have the funds to continue running, with minimal disruptions, in the event that an important member of staff passes away.

You may also want to consider taking out:

• Business protection insurance
• Ownership protection

Business protection insurance can help to protect any debts you may have incurred through your business (for example, loans, mortgages or credit cards).

A policy can be taken out by a business owner or employee and, upon their death, the pay out from the policy will be paid back into the business to help pay off outstanding debts.

If a shareholder (or partner) of your business was to pass away, having ownership protection in place will provide the opportunity for their shares to be bought back by others within the business.

Without this form of cover, their share of the business could become the ownership of their loved ones.

With ownership protection, each shareholder will take out a policy that represents their share in the business, with an option to buy this share upon their passing being given to other shareholders.

We don’t provide these cover options at Reassured.