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Directors life insurance, four policies, four jobs

Directors life insurance is not one product.

It is four policies that can sit on a company director's life: relevant life cover for your family, key person insurance for the business, shareholder protection for your co-owners, and a personal policy you pay for yourself.

What separates them is who gets the money.

Every claim here is our summary of a named external source, linked beside it. Sources change: check the wording at the link before you rely on it.

Who needs the money? ↓Tax side by side →
01 · Key facts

Directors life insurance: key facts

Six points to hold on to before you compare anything.

Each is our summary of a named source, linked beside it.

Business protection insurance →
  1. A relevant life plan is single life cover an employer takes out and pays for on behalf of an employee or director, with benefits paid through a trust to their family (Royal London ↗).
  2. Key person cover is owned and paid for by the employer, so any payout goes to the employer (Legal & General ↗).
  3. A cross option agreement gives the surviving shareholders the option to buy a shareholder's shares from the personal representatives (Royal London ↗).
  4. HMRC allows key person premiums as a deduction only if the sole purpose is meeting a loss of trading income (HMRC ↗).
  5. Royal London says HMRC does not treat employer-paid relevant life premiums as a P11D benefit (Royal London ↗).
  6. Legal & General says its Relevant Life Plan should not be used for business protection (Legal & General ↗), so protecting both family and company takes two policies.
02 · What it is

What is directors life insurance? Ask who gets paid

Directors life insurance is a label for several policies, not one an insurer sells under that name.

Each pays a different person.

Pick who you want the cover to look after, and the card shows the policy built for that job.

Relevant life is paid for by the company but is not a company asset: Royal London says the trustees own it (Royal London ↗).

Key person cover is the reverse.

The company is the applicant and the plan owner (Royal London ↗), and it receives the proceeds (Royal London ↗).

Relevant life for directors →Key person insurance for directors →Key person vs relevant life →

Who should the cover look after?

Pays the family, through a trust

Relevant life cover

  • Single life cover an employer takes out and pays for on behalf of an employee or director, with benefits paid through a trust to their family (Royal London ↗).
  • It can only provide life cover or terminal illness benefit, not critical illness (Royal London ↗).
  • HMRC's conditions: a capital sum on death under an age no higher than 75, and no surrender value (HMRC ↗).
  • Not for business protection: Legal & General says its plan should not be used for key person or shareholder protection (Legal & General ↗).
Relevant life insurance →
03 · Tax

Tax comparison for directors

HMRC treats each policy differently, and a director who owns shares meets an extra test on key person cover.

HMRC's manual lists a policy on directors who are major shareholders, but not on other employees, as a circumstance that may point to a non-trade purpose (HMRC ↗).

Where a director's death would significantly affect the value of the shares, one purpose may be protecting the value of their shares and estate (HMRC ↗).

Legal & General's rule of thumb is that tax relief should be available where the key person's shareholding is under 5% (Legal & General ↗).

That is the insurer's view: HMRC decides the question on the evidence of what the directors were seeking to achieve (HMRC ↗).

Check your own position with your accountant.

Key person insurance tax →

Relevant life

Key person

Shareholder protection

Personal policy

Premiums
Generally a business expense if paid wholly and exclusively for the business, in Royal London's view (Royal London ↗)
Deductible only if the sole purpose is trade (HMRC ↗) and, for life cover, it is term insurance with no other benefits (HMRC ↗)
Depends on the structure: check with your accountant
Paid by you. A sole trader's or partner's cover on themselves is not deductible (HMRC ↗)
Benefit in kind
Not a P11D benefit, says Royal London (Royal London ↗)
Not the employee's policy: the company owns it (Royal London ↗)
Depends on the structure: check with your accountant
None: it is not a work benefit
Payout
Outside the EFRBS charge (HMRC ↗); held in trust, not part of the employee's estate, says Royal London (Royal London ↗)
Trading income, where the premiums were deducted (HMRC ↗)
Business property relief still available under a cross option agreement, says Royal London (Royal London ↗)
Written in trust, outside the estate and probate, says MoneyHelper (MoneyHelper ↗)
Swipe to compare
04 · Which type

Which directors life insurance do you need?

Tick what you want the cover to do.

The needle shows which policy matches those aims.

It is not a recommendation: an FCA-authorised adviser can tell you what suits you.

Nothing you tick is stored or sent.

With co-owners there is a third question: who ends up with your shares.

That is shareholder protection, where a cross option agreement gives the survivors the option to buy them (Royal London ↗) and life cover funds the purchase.

Shareholder protection →
Relevant lifeBothKey person

Tick what you want

The needle moves with each answer.

05 · Choosing

How to choose directors life insurance, step by step

Work out who relies on you before you look at a policy.

Then size each gap and match it to the policy built for it.

For key person cover, Legal & General's guide says a simple formula is a multiple of earnings, often up to 10 times for life cover (Legal & General ↗).

For relevant life, Royal London says the cost of the employee's whole package should be reasonable in light of their contribution to the business and compared with similar businesses (Royal London ↗).

Before you buy, the FCA tells consumers to check the firm on its Firm Checker (FCA ↗).

Key person insurance calculator →Limited company life insurance →
01

Family

Who relies on your income?

Relevant life, written in trust, pays your beneficiaries. It covers death, or terminal illness, only.

02

Company

What would the business lose?

Lost profit, recruitment or a loan to repay: key person cover pays the company.

03

Shares

Who gets your shares?

A cross option agreement, funded by life cover, lets your co-owners buy them.

04

Check

Use an authorised firm

Check the broker or adviser on the FCA Firm Checker before you buy.

06 · UK figures

Directors life insurance: UK statistics

We print only figures a named source publishes.

These come from the Association of British Insurers and from one insurer's own research, and each links to its source.

Key person risk →
Group and individual protection claims paid, 2024£8bn

ABI and GRiD figures; check at the link (ABI ↗)

New individual protection claims paid, 202497.9%

ABI figure; check at the link (ABI ↗)

of businesses believe they would stop trading within a year of losing a key individual59%

Legal & General's own research, a belief survey, not a failure rate (Legal & General ↗)

07 · Sources

Check it for yourself

Every claim on this page is our summary of one of the documents listed here.

We last checked them against the live sources on 28 September 2026.

The documents are the authority, not this page.

Insurers and HMRC update them, so validate any figure or condition at its link before you rely on it.

Questions

Directors life insurance, answered

Four.

Relevant life cover is paid for by the company and pays your family through a trust.

Key person insurance is owned by the company and pays the company.

Shareholder protection funds your co-owners buying your shares.

A personal policy is one you arrange and pay for yourself.

They do different jobs, so many directors hold more than one. Royal London relevant life FAQ ↗

We do not rank them: each does a different job, and the tax depends on your facts.

Royal London says HMRC does not treat employer-paid relevant life premiums as a P11D benefit.

HMRC allows key person premiums as a deduction only if the sole purpose is meeting a loss of trading income and, for life cover, the policy is term insurance with no other benefits.

Ask your accountant how each applies to you. HMRC BIM45525 ↗

Not necessarily.

It depends on who relies on your income or your work: your family, the company, a lender or your co-owners.

If nobody relies on your income or your work, there may be nothing to insure.

An FCA-authorised adviser can assess your circumstances.

It depends on the policy.

For key person cover, Legal & General's adviser guide says a simple formula is a multiple of the key person's earnings, often up to 10 times for life cover, with a lower figure for critical illness.

For relevant life, Royal London says the cost of the employee's whole package should be reasonable in light of their contribution to the business and compared with similar businesses.

The key person calculator works through the insurers' methods. Legal & General adviser guide ↗

Yes. The policies do different jobs.

Legal & General says its Relevant Life Plan should not be used for business protection such as key person or shareholder protection, so a director who needs to protect both family and company has separate policies. Legal & General relevant life guide ↗

Beta · information only

Protecting the company too? Size the key person cover.

If the business is what needs protecting, the calculator works through the earnings, profit and loan methods UK insurers publish.

01Earnings, profit and loan methods

02Insurers’ published multiples, with sources

03No email, no quote, no sales call

Information, not advice

We are not an insurer, broker or regulated adviser, and we do not give quotes or recommend a policy. For regulated advice, use an adviser authorised by the FCA.

Open the calculator →

Takes you to the key person insurance calculator.

Not financial advice. This page is general information. Before buying insurance, the FCA tells consumers to check the firm on its Firm Checker (FCA ↗). For free guidance, see MoneyHelper.