A Relevant Life Plan Still Underwrites the Director

If you are hoping that paying for cover through the company will let a director with a health condition skip the medical questions, the honest answer is no. A relevant life plan is individually underwritten. It is a single policy on one named person's life, and the same health questions, the same GP report and, where the insurer wants one, the same nurse screening apply exactly as they would on a personal policy bought at the kitchen table. A health rating that a condition would attract on a personal application will, in almost every case, produce the same rating on a relevant life plan.

What a relevant life plan changes is not the underwriting. It changes who pays and how the arrangement is taxed. The employer pays the premium, that premium is usually treated as an allowable business expense, and it is not normally a benefit in kind for the director. The benefit is written into a discretionary trust and reaches the family rather than the company. Those are real advantages, and for many directors they are reason enough. Getting round a health rating is not one of them.

There is one route that genuinely can avoid individual medical underwriting, and it is worth understanding at the outset because it changes what you should do next. It is not the relevant life plan. It is a group life scheme with a free cover limit, and whether it is open to you depends mostly on how many people the company employs.

The short answer: it underwrites you, not the company

An insurer pricing a relevant life plan is pricing one thing: the risk that a particular named person dies within the term. The company being the payer does not change that person's blood pressure, medication or medical history, so it does not change the price. The employer signs the cheque; the director's life is what is being insured.

That means the full spectrum of underwriting outcomes is on the table, and it is the same spectrum as a personal application. You might be offered standard terms. You might be offered cover with a loading, where the premium is higher to reflect the assessed risk. You might be offered cover with an exclusion, where a specific cause of death is carved out but everything else is covered. The application might be postponed until a condition has stabilised, or, at the far end, declined. Which of those you get depends on the director's health, not on the wrapper the policy sits in.

So the mental model to correct is this. A relevant life plan is not a company benefit that comes with cover attached, the way a season ticket loan comes attached to a payroll. It is an individually underwritten life policy that happens to be paid for and structured through the business. The medical assessment sits at its centre, and there is no version of it that removes that assessment.

Why a relevant life plan is individually underwritten

A relevant life plan is, at heart, a term assurance on a single life. To qualify for its tax treatment it has to meet a set of conditions: it insures one person, it is pure protection with no investment or surrender value, it pays a lump sum on death or terminal illness, it is held in trust, and it must end before a maximum age. Because it insures one named individual, the insurer asks that individual the whole battery of questions it would ask anyone: health history, current medication, height and weight, family history, alcohol and smoking, and often consent to a report from the GP.

The maximum-age condition catches people out on its own, quite apart from health, because a plan that would otherwise run for the term you want can be cut short by the ceiling. We set that specific trap out in whether you are too old for a relevant life plan, and it is worth checking before you assume the term you have in mind is available.

The same logic that applies to health applies to occupation and pastimes. If the director spends part of the week doing something an insurer rates, that sits on the relevant life application exactly as it would on a personal one. A director who also works at height gets the occupation questions we describe in the guide to whether being a scaffolder changes the premium, and one who does aerial chainsaw work faces the assessment set out in how tree surgery is treated on a life application. The business structure does not soften any of it.

What a relevant life plan actually changes: who pays and the tax

The value of a relevant life plan is entirely in its plumbing, and the plumbing is worth having. The employer pays the premium, and provided the arrangement is set up correctly the premium is usually treated as an allowable business expense for the company. It is not normally treated as a benefit in kind for the director, so it does not add to their personal tax bill the way a premium paid out of taxed salary would.

The payout is arranged through a discretionary trust. That does two things. It keeps the money out of the company, so it goes to the director's chosen beneficiaries rather than into the business or towards its creditors. And in most cases it keeps the benefit outside the director's estate for inheritance tax. The tax treatment of these plans follows from the rules that apply to life cover provided through employment, set out in the Income Tax (Earnings and Pensions) Act 2003, and it applies across the United Kingdom.

None of that is small. For a director paying for personal cover out of dividends or salary that has already been taxed, moving to an employer-paid, trust-held arrangement can be a genuine improvement in efficiency. It simply is not an improvement in underwriting. If a terminal diagnosis is already in the picture, the position is different again, and we deal with it separately in a director's terminal diagnosis and a relevant life policy.

The route that can skip underwriting: a group scheme's free cover limit

Here is the part advisers do not always volunteer, and it is the reason this page exists rather than a generic relevant-life explainer. There is an arrangement that can provide cover without asking the director a single medical question, and it is not a relevant life plan. It is a group life scheme, the kind an employer runs as death in service cover for its staff.

Group schemes typically have a free cover limit, sometimes called a non-medical limit. Up to that amount, members are covered automatically on joining, subject to being actively at work, without individual medical underwriting. Above it, the excess is medically underwritten in the usual way. For a director whose own health would make an individual policy expensive, heavily loaded or hard to place, a group scheme can therefore be the more useful route, because the free cover limit does not care about the director's medical history up to its ceiling.

The catch is size. Free cover limits and the willingness of an insurer to offer non-medical cover generally depend on the scheme having enough members to spread the risk. A company of two or three people may find a group scheme is either unavailable or itself subject to underwriting, which removes the advantage. So the honest comparison for a director with a health condition is not relevant life versus doing nothing. It is relevant life, which underwrites the individual, against a group scheme, which may not, if the company is large enough to run one.

What a health rating looks like on a relevant life plan

Assume for a moment the individual route is the one available. What does a health rating actually mean in practice? It is not a yes or no. Underwriters work in gradations, and the same three or four outcomes recur.

• A loading. The commonest result for a manageable condition. The premium is increased by a proportion to reflect the assessed extra risk, and the cover is otherwise normal.
• An exclusion. The insurer covers the life but writes out a specific cause, so the family is covered for everything except the named risk. Sometimes offered as an alternative to a loading.
• A postponement. The insurer will not price the risk yet, usually because a condition is recent, unstable or still being investigated, and states a period before it will look again.
• A decline. The assessed risk sits outside the insurer's appetite. Because appetites differ, a decline from one insurer is not a decline from the market.

If a personal policy would be declined on a condition, a relevant life plan on the same life will generally be declined too, because it is the same underwriting. Where a decision goes against you, ask the insurer what information it relied on; members of the Association of British Insurers commit to explaining decisions, and you are entitled to understand the basis. You cannot, however, buy new cover to insure against something that has already happened, and the limits of that are set out in what new cover cannot do after a terminal diagnosis.

If the rating is heavy, or the director is declined

A hard result on the first application is not the end of the exercise, and the moves worth making are practical rather than clever. Approach a broker who specifically places impaired lives, because loadings for the same condition vary between insurers and a broker can canvas several without a formal application landing on each one's records. Gather the medical evidence that supports the case: consultant letters, recent test results and a clear picture of how stable a condition has been. Consider whether an exclusion in place of a loading would be an acceptable trade for the family.

Weigh the group scheme route seriously if the company is large enough, for the reason set out above. And remember that the duty to answer accurately does not end when the policy starts; a material change afterwards can still matter, which is why, for example, taking up smoking after the policy started is not a neutral event. If the director's life involves long spells out of the country, that belongs on the application too, and we cover it in life insurance when you spend six months a year abroad.

When you are ready to see the actual numbers, a broker can price the individual route against the director's real health and, where a group scheme is feasible, run the two side by side. You can get life insurance quotes and ask them to do precisely that comparison rather than guessing which way is cheaper.

Scotland and Northern Ireland

The underwriting is identical wherever in the United Kingdom the director lives, because it is the insurer's view of the risk, not a matter of local law. The core tax treatment is also UK-wide, flowing from the same Act of Parliament. What differs across the nations is the trust that sits around the plan.

A relevant life plan pays through a discretionary trust, and trust law is not uniform across the UK. Scotland has its own body of trust law, and Northern Ireland its own framework again, so the trust deed used should be one drafted to work in the relevant jurisdiction rather than an England-and-Wales form pressed into service. It is a paperwork point rather than a pricing one, but a trust that does not operate cleanly can undo the very advantage the plan was bought for. Separately, the definition of terminal illness a policy uses to pay early is its own creature and is not the same as the test used for certain benefits in Scotland, a distinction we draw out in why BASRiS has no time limit while your life policy still does. For general, impartial guidance on business protection and on what to check before you buy, the government-backed MoneyHelper service is a good, sales-free starting point.

Frequently asked questions

Does a relevant life plan avoid medical underwriting?

No. It is an individual policy on a single life, so the same health questions, GP reports and screenings apply as on personal cover. If a condition would produce a loading or an exclusion on a personal policy, it will generally produce the same outcome here. The tax treatment and the employer paying the premium do not alter the insurer's assessment of the risk.

What does a relevant life plan actually change?

Who pays, and how it is taxed. The employer pays the premium, which is usually an allowable business expense and is not normally treated as a benefit in kind for the director. Benefits are paid through a discretionary trust rather than into the company or the estate, which keeps the money out of the business and, in most cases, outside the estate for inheritance tax.

Is group life cover different?

Yes, and this is the practical point. Group life schemes often have a free cover limit, below which members are covered without individual medical underwriting. For a director whose health makes individual cover expensive, a group scheme with enough members can be the more useful route, because the free cover limit does not take account of medical history up to its ceiling.