Ever wondered what the benefits of life insurance actually…
If you’re self-employed or the director of a limited company, you’ll be able to claim some forms of life insurance as a business expense.
Typically policies that can be claimed as a business expense will be policies such as relevant life insurance or keyman life insurance, which are taken out through the business.
If you choose to take out your own personal cover, you won’t be able to claim this as a business expense.
Although we can’t offer business life insurance policies at Reassured, this guide will help to provide answers to commonly asked questions.
Keep reading to find out about claiming life insurance as an allowable business expense…
Allowable business expenses are costs that are essential to the day-to-day running of a business (office costs, staff salaries etc).
Typically these business expenses will be tax-deductible.
When claiming allowable business expenses, the costs must have been incurred solely as a result of running the business.
Anything that has a personal element will not be considered to be a business expense.
For example, if claiming travel as a business expense, only travel for business trips will be considered a business expense.
A daily commute to the office won’t count as a business expense.
For more information, you can check out the government guidelines for claiming business expenses.
There are a few life insurance options that can be secured through your company. The most common forms of protection include:
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 compare life insurance quotes on your behalf to provide you with cover that meets all of your needs at a cost-effective price.
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.
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.
Yes, keyman insurance will typically be seen as a business expense.
This is because the policy is paid for and owned by the business, so the pay out will usually go directly back into the business to ensure the business doesn’t struggle financially.
This means the company will also benefit from corporation tax relief on the premiums paid.
The pay out will be paid to the company tex-free, but then maybe liable to tax as with any money within a business.
It’s often a wise idea to contact an accountant or financial professional when taking out keyman insurance, as they’ll be able to provide the latest rules and regulations.
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.
Business owners and directors can usually pay for their life cover through their business using the policy types listed above.
Rather than taking out a standard life insurance policy, such as level term or whole of life insurance, you’ll need to take out a relevant life insurance policy or keyman insurance for the policy to be seen as a business expense.
It can be hard thinking about what will happen to your business if you were no longer around, but securing life insurance can help to ensure the financial future of your business.
If you choose to provide a life cover benefit to your employees you should also be able to claim this as a business expense.
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.
No, if you receive life insurance (such as death in service, relevant life insurance or keyman insurance) through your employer or company you won’t typically have to pay tax.
With death in service, neither the employee nor employer will need to pay tax for this benefit.
Relevant life insurance and keyman insurance can be classed as a business expense, meaning they are often tax-deductible so you won’t need to pay tax on this type of policy either.
Generally speaking, business life insurance can be used for a number of reasons, these include:
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 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.
We hope this article has given you a better understanding of claiming life insurance as a business expense.
You may want to contact a financial advisor or an accountant before taking out any business life insurance policies as they’ll be able to provide you with the most up to date information.
This will help you to choose the right type of cover for your business.
Unfortunately, we can’t compare these types of life insurance for you at Reassured.
However, if you believe you would benefit from individual life insurance (separate to a policy provided by a business) we can compare quotes from some of the UK's leading life insurance providers to find you the best deal.
Although it can’t be classed a business expense, it can help to ensure the right cover is in place to protect your loved ones (even if you change your career).
Get in touch for your free, no-obligation quotes.
Ever wondered what the benefits of life insurance actually…
What cover protection do you need to secure when taking out…
The average life insurance cost in the UK varies depending…
Ever wondered whether your life insurance proceeds are…
Whilst rare, this comprehensive guide will help you to…
Family life insurance can secure the financial future of…
Have you ever asked 'Can you have more than one life…
What's most important to you when it comes to arranging…
Compare level term vs decreasing term life insurance to…
Yes very pleased with my choice very helpful easy to understand and very pleasant transaction all good!Mrs M Rushworth
Very professional and reassuring. Life insurance sorted in about 10 minutes.Stephen Davies
very courteous and friendly. Polite professional and empathic.Stedroy Fenton
Another happy customer I am. They are very professional and kind. Fully communicative. I recommend.Piotr Stepien
Really attentive during the call, good clear guidance throughout. Well done.Michael Reynolds
Amazing service quick fast and easy and Joey was a star on the phone really help me thanks.Sera Woolley
I made the right choice and now I feel relieved that I did.glyn
Really genuine kind and compassionate team with great knowledge and friendly approach highly recommend them!Katelia Merritt
I must say Jake took me through every step and was brilliant, recommend them anytime.Allan Green
Very happy and everything explained well, so glad a took the time to take the call, normally I would say I'm busy. But compared to other company's we save so much more money.Jenny Berry