One Employee Is Too Few for Death in Service

If your company has one employee and that employee is you, the honest answer to whether a one-person company can have death in service cover is a narrow one. Not in the way most people mean the phrase. The staff benefit everyone calls death in service is a group scheme, and a group scheme needs a group. Insurers that run these arrangements generally require a minimum number of lives before they will set one up at all, and a company with a single member usually sits below that floor.

That is the eligibility cliff most searches never reach. People start by comparing benefits, multiples of salary and tax treatment, when the question is settled earlier and more bluntly than that: can the scheme even be written for one person? For a group death in service policy the answer is normally no, and no amount of shopping around changes it, because the obstacle is the size of the group, not the price.

There is, though, one employer-paid route that stays open when you are the only name on the payroll, and it is built to do almost the same job. It is a relevant life plan: a single-life policy, owned and paid for by the company, held in trust, that pays a lump sum to your family if you die while it is in force. This page explains why the group route is usually closed to a one-person company, what the single-life route does in its place, and where its limits honestly lie.

The short answer: a group scheme needs more lives than you have

Death in service, as most employees know it, is a benefit paid for by an employer through a group life policy. The employer insures a category of staff — often everyone on the payroll, or everyone in a particular pension scheme — and if one of them dies while employed, a lump sum, usually a multiple of salary, is paid to their family. The cost is spread across the whole group, and individual members are rarely asked much, if anything, about their health.

That model depends on there being a group. An insurer pricing a group scheme relies on the spread of many lives to make the averages work, and on a certain amount of administration being worth its while. Below a minimum number of members, neither of those holds, so insurers generally decline to set a scheme up. Where exactly the floor sits varies between providers, and it is not a number worth quoting as though it were a rule of law, but the practical effect for a one-person company is consistent: the group door is usually shut.

So the sequence people expect — choose death in service, compare the multiples, sign up — never even starts for a single-director business. The eligibility question comes first, and it closes the group route before any comparison of features begins.

Why group schemes have a minimum number of members

It helps to understand why the floor exists, because it explains why you cannot simply ask an insurer to make an exception for you.

A group life scheme works on pooled risk. The premium reflects the age profile and size of the whole group, not a close look at each individual, which is why most members join without medical underwriting up to a set level of cover, often called a free cover limit. That free cover only works because the insurer is spreading its risk across many lives, some of whom are young and healthy and will in effect subsidise the rest. With one life there is nothing to pool, no averaging and no way to offer terms without underwriting that single person in detail — at which point it is no longer really a group product at all.

There is an administrative floor too. A scheme has to be established under a master trust, renewed each year and administered, and providers set a minimum size below which that effort is simply not commercial. None of this is aimed at penalising small companies. It is that the group life product was designed for groups, and a company of one is not the thing it was built for. Asking for it is a little like asking to be added to a company five-a-side team when you are the only person in the building.

The one employer-paid route that stays open: a relevant life plan

This is where the relevant life plan comes in, and it is worth being precise about what it is, because it is the direct answer to the question this page asks.

A relevant life plan is a life policy that an employer takes out on the life of an employee, pays the premiums on, and holds in trust for that employee's family. It is written on a single life, so it does not need a group behind it. It pays a lump sum on death into a discretionary trust, from which the money can reach the family without waiting for probate. And because a company director is an employee of their own company, a sole director can be the employee a relevant life plan covers — which is exactly why it is the one employer-paid route that survives when the group route does not.

The reason it matters as more than a technicality is the way it is treated. A relevant life plan is designed to give a single employee something close to the death in service benefit a larger employer would provide through a group scheme, using a structure the tax rules recognise. The premiums are not usually treated as a taxable benefit in kind on the employee, and the payout is normally free of inheritance tax when it is written in trust. Whether the company can deduct the premiums against its own profits is a separate question that turns on the wholly and exclusively test, and it is worth confirming with the company's accountant rather than assuming it.

How a relevant life plan compares with death in service

Set side by side, the two do a similar job from the family's point of view: an employer pays for cover, and a lump sum reaches the household if the insured person dies in service. The differences are in how you get there, and it is worth being clear-eyed about them.

• Underwriting. Group members often join with little or no health assessment. A relevant life plan is a single policy on a single life, so it is individually underwritten, and your health and medical history are part of what the insurer looks at before it offers terms.
• The amount. Group cover is usually a fixed multiple of salary set by the scheme. A relevant life sum is agreed with the provider, generally as a multiple of your total remuneration, and each provider sets the maximum multiple and the maximum sum it will offer.
• Portability. Group cover ends when your employment does. A relevant life plan is arranged for you specifically, and can be structured to continue in a way group membership cannot.

The comparison also flushes out a more general trap: assuming you have death in service when you do not. People leave a salaried job to work through their own company and quietly lose the cover their old employer provided, a switch we set out in the cover you lose on day one when you leave PAYE to contract. Others assume they are covered from the first morning of a new role when they may not be, as with cover during a probation period, or where the working pattern is irregular, as with NHS bank staff and the death benefit they may not have. A one-person company is simply the clearest version of the same lesson: if nobody has arranged cover on you, there is none.

What a relevant life plan will and will not do

Honesty matters more than reassurance here, so it is worth being plain about the limits.

A relevant life plan will not pay out simply because a company exists and would like it to. It is a contract of insurance, individually underwritten, and the insurer can decline an application, ask for a higher premium, or exclude certain conditions depending on your health and history. What it will pay, and on what terms, is fixed at the point the policy is written, and it is subject to the policy conditions and to the accuracy of the information given when it was set up. Nobody can promise you cover or a payout in advance; that always depends on underwriting.

It is a term policy, running to an age the provider sets rather than for the whole of life, so it protects a working lifetime rather than guaranteeing a payout whenever death eventually comes. And it is cover on you, not a solution to what happens to the company itself when you are gone. If you are a sole director, the business faces a separate and immediate problem the moment you die: nobody holds the authority to run it, pay staff or settle invoices until a new director is appointed. That is a different subject, and an urgent one, which we deal with in what happens when payroll is due Friday and the only director died Monday and in the wider checklist in what to change this week when you are the only director.

What changes when you take on a second employee

The eligibility cliff is not permanent. It moves the moment your company is no longer a company of one.

Once you have employees, a small group life scheme may become available, and it is worth comparing as your headcount grows, because the pooling that makes group cover work starts to fall in your favour. Taking on staff also changes what the business itself would lose if a key person died, which is a different kind of cover again. An existing relevant life plan can usually continue alongside a new group scheme, though any insurer will still assess the total cover on any one individual against their remuneration, so the two are not simply stacked without limit.

None of that is a reason to wait. The cover that protects your family is worth having while you are the only employee, precisely because you are the only employee and there is no group scheme quietly standing behind you. If you want to see what a single-life, employer-paid plan would look like for your situation, you can get life insurance quotes and have an FCA-authorised broker set the cover against your remuneration and your health. The rest of this topic is gathered in our guide to what dies with a business owner.

Scotland and Northern Ireland

The reason a group scheme is usually unavailable to a one-person company is commercial and UK-wide: it is the insurer's minimum, not a rule of law, and it applies the same whether the company is registered in Glasgow, Belfast or Leeds. A relevant life plan is available across the United Kingdom in the same way, and the tax treatment that makes it attractive is set by the UK Parliament rather than by the devolved administrations.

Where a jurisdiction can make a practical difference is in the trust that holds the policy. Trust law is not identical across the UK, and Scotland in particular has its own rules, so the discretionary trust that receives a relevant life payout should be set up for the part of the UK you live in. That is a drafting point for whoever arranges the plan, not a change to whether you can have one.

Frequently asked questions

Can a one-person company have death in service cover?

Not usually through a group scheme, because insurers generally require a minimum number of members before they will set one up, and a single-director company sits below that floor. The employer-paid route that remains open to a sole director is a relevant life plan, which is written on one life, owned by the company and held in trust for the family.

How is a relevant life plan different from a group scheme?

It is a single-life policy owned by the employer and written in trust for the employee's family, rather than a pooled arrangement covering several employees at once. The tax treatment is designed to mirror death in service, but because it insures one person it is individually underwritten, and the eligibility rules and maximum cover are set by each provider.

What if we take on a second employee later?

A small group scheme may then become available, and it is worth comparing as your headcount grows and pooling starts to work in your favour. An existing relevant life plan can usually continue alongside it, although the total cover on any one individual is still assessed against their remuneration by the insurer, so the two are not simply added together without limit.