Quick answer
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Relevant life insurance pays out to the employee's family (death-in-service style) and is a tax-efficient benefit, with premiums usually a deductible business expense and the payout held in trust, tax-free. Keyman insurance pays the business to cover lost profit if a key person dies or is critically ill. One protects the family; the other protects the company — many firms hold both.
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- Relevant life cover benefits the employee’s family; keyman cover benefits the business.
- Relevant life is a death-in-service style benefit; keyman protects against financial loss.
- The company usually pays both premiums, but the payout goes to different places.
- The two products are complementary, not alternatives, and many firms hold both.
- Tax treatment differs and depends on circumstances, so take advice on your own position.
The choice of relevant life vs keyman insurance confuses many business owners, because both are paid for by the company and both involve a life policy. Yet they protect completely different things. One looks after an employee’s family, the other looks after the business. This guide sets out the difference clearly, with a side-by-side comparison, so you can see which you need, or whether both make sense. To explore business protection in more depth, our keyman insurance page is a good starting point.
☰ On this page
- What is relevant life insurance?
- What is keyman insurance?
- Relevant life vs keyman insurance: the core difference
- Side-by-side comparison
- Who is protected by each policy?
- How the tax treatment differs
- When relevant life insurance is the right choice
- When keyman insurance is the right choice
- Can you have both relevant life and keyman cover?
- How the two policies are set up
- How much do the two cost?
- Common mistakes when choosing between them
- How they fit with other business protection
- Your next step
- Frequently Asked Questions
What is relevant life insurance?
Relevant life insurance is a death-in-service style life policy that an employer takes out on an employee. If the employee dies during the term, the payout goes to their family or chosen beneficiaries, not to the business.
It is often used by smaller companies that cannot access a group death-in-service scheme, and by directors who want personal life cover paid through the business. The policy is written into trust, so the payout passes to the family outside the employee’s estate.
The key point is who benefits: relevant life cover is for the individual’s loved ones. The company arranges and pays for it as an employee benefit, but it never receives the money.
Why relevant life cover uses a trust
A relevant life policy is written into a discretionary trust from the outset. The trust is what directs the payout to the family rather than the company or the employee’s estate.
This structure does two jobs. It keeps the proceeds outside the employee’s estate for inheritance tax in most cases, and it makes sure the right people receive the money quickly. Setting the trust up correctly is central to the cover working as intended.
What is keyman insurance?
Keyman insurance, also called key person insurance, protects the business against the financial loss of losing someone vital to it. The company owns the policy, pays the premiums and receives the payout.
That payout helps the business absorb the shock of losing a founder, director or other key individual. It can fund recruitment, cover lost profit or reassure lenders while the business recovers.
If you want the full background on this product, our guide to what key person insurance is explains how it works and who needs it. The essential difference here is direction: the money flows to the business, not to a family.
Relevant life vs keyman insurance: the core difference
The simplest way to tell them apart is to ask who receives the payout. That single question separates the two products cleanly.
- Relevant life insurance pays the employee’s family, protecting their loved ones.
- Keyman insurance pays the business, protecting it against financial loss.
Everything else flows from that. Because relevant life cover benefits the individual, it behaves like a personal life policy funded by the employer. Because keyman cover benefits the company, it behaves like business protection. They answer two different worries, which is why they are not really competing products at all.
Side-by-side comparison
The table below summarises the main differences at a glance. Use it as a quick reference, but remember that the right choice depends on what you are trying to protect rather than on any single feature in isolation. Read across each row to see how the same business decision plays out differently under the two products.
| Feature | Relevant life insurance | Keyman insurance |
|---|---|---|
| Who is protected | The employee’s family | The business |
| Who receives the payout | Family or beneficiaries (via trust) | The company |
| Who pays | The employer | The business |
| Purpose | Personal/family protection | Protect business against loss |
| Cover for illness | Usually death/terminal illness only | Can include critical illness |
| Held in trust | Yes, standard | No, owned by the company |
Who is protected by each policy?
This is the heart of the matter. The two products exist to protect different people, and confusing them can leave a real gap.
Relevant life insurance protects the employee’s dependants. It is designed to give a family financial security if the person dies, much like personal life cover. The business is simply the vehicle that arranges and funds it.
Keyman insurance protects the business and, indirectly, everyone who relies on it: other staff, owners and creditors. It exists so the company can survive the financial impact of losing a key individual. One protects a household, the other protects a business.
This distinction has real consequences at claim time. If a key director died and the business only held relevant life cover, the family would be looked after but the company would face the financial shock with no support. If it only held keyman cover, the business would receive funds but the family would have nothing from the employer. That is precisely why the two are best understood as separate decisions.
How the tax treatment differs
Tax is one of the biggest practical differences, though the detail depends on circumstances and should be confirmed with an accountant. The general positions differ between the two products.
For relevant life insurance, premiums are generally treated as an allowable business expense and are usually not a taxable benefit-in-kind for the employee, provided the policy meets the qualifying conditions. The payout, written in trust, is normally free of income tax and typically falls outside the estate for inheritance tax.
For keyman insurance, premiums may be tax-deductible under the Anderson principles, subject to your local inspector’s agreement, and where they are allowed the payout is usually treated as a taxable trading receipt. Our guide to keyman insurance and tax sets out those principles in detail. Because both positions depend on the specific arrangement, professional advice is essential.
When relevant life insurance is the right choice
Relevant life cover suits situations where the goal is to look after an individual and their family rather than the business. It is especially popular in a few scenarios.
It tends to fit best when:
- A small company has no group scheme but wants to offer death-in-service style cover.
- A director wants personal life cover funded tax-efficiently through the business.
- An employer wants to attract or retain staff with a valuable benefit.
- An individual is concerned about pension lifetime limits, as this cover sits outside them.
In each case, the aim is family security. The business gains a recruitment and retention benefit, but the protection itself is personal.
For owner-directors in particular, relevant life cover can be a tax-efficient way to hold personal life insurance. Rather than paying for cover from taxed income, the premium is met by the company, subject to the qualifying conditions being satisfied. That can make a meaningful difference to the real cost of protecting a family.
When keyman insurance is the right choice
Keyman insurance suits situations where losing a particular person would hurt the business financially. The focus is the company’s survival, not a family’s security.
It tends to fit best when:
- One person drives much of the revenue, such as a founder or top salesperson.
- Specialist knowledge sits with an individual who would be hard to replace.
- A loan or investor agreement requires it as a condition of funding.
- The business would face real disruption recruiting and rebuilding after a loss.
Here the payout needs to reach the business so it can recover. That is exactly what keyman cover delivers, and why it cannot be replaced by a family-focused policy.
Can you have both relevant life and keyman cover?
Yes, and many businesses do. The two products protect different risks, so holding both is common and sensible rather than duplication.
A director might be covered by a relevant life policy that protects their own family, and separately by a keyman policy that protects the business from losing them. The same person is insured under both, but the payouts go to different places for different reasons.
Running both gives complete cover: the family is protected, and the business is protected. The combined premium is often modest against the risks involved, and a broker can structure the two policies so they work together cleanly.
There is no rule that one person can only be insured once. A founder might hold relevant life cover for their family, keyman cover for the business and even shareholder protection as a co-owner, each policy doing a separate job. Reviewing all the risks together, rather than buying cover piecemeal, is the surest way to avoid both gaps and unnecessary duplication.
How the two policies are set up
The mechanics of arranging each policy reflect their different purposes. Getting the setup right is as important as choosing the product, because errors here can undermine the cover.
The main differences in setup are:
- Ownership. Relevant life cover is owned by the employer but written in trust for the family; keyman cover is owned outright by the business.
- Beneficiary. Relevant life names the family through the trust; keyman names the company.
- Underwriting. Both assess the insured person’s age and health, so the individual completes medical questions either way.
- Sum assured. Relevant life is often a multiple of salary; keyman is based on the business’s financial exposure.
Because the documents and trust arrangements differ, it is worth setting each policy up with proper guidance. A small error in ownership or trust wording can change who receives the money and how it is taxed.
How much do the two cost?
Both are life policies, so the same factors drive the premium: the insured person’s age, health, the sum assured and the term. On a like-for-like basis, the cost of insuring the same person is broadly comparable.
The practical cost difference usually comes from what each policy covers and how it is structured. Keyman cover that includes critical illness will cost more than life-only relevant life cover, simply because it protects against more.
For a clearer view of what shapes the price of business protection, our guide to keyman insurance and tax covers the tax angle, and tax relief can change the real, after-tax cost of either policy. As always, a personalised quote is the only accurate figure.
It is also worth remembering that the cheaper headline premium is not always the better value. A relevant life policy and a keyman policy on the same person can look similar in price, yet deliver very different outcomes depending on who needs protecting. The sensible comparison is not premium against premium, but cost against the specific risk each policy removes.
Common mistakes when choosing between them
Because the products look similar on the surface, businesses sometimes pick the wrong one or assume one covers everything. A few errors come up repeatedly.
- Assuming keyman cover protects the family, when the payout goes to the business.
- Using relevant life cover to protect the business, when the money goes to the family.
- Believing one policy removes the need for the other, leaving a gap.
- Overlooking the trust on relevant life cover, which affects the tax outcome.
- Not reviewing cover as the business and the people in it change.
Getting clear on who you want to protect, the family or the business, prevents almost all of these. Once that is settled, choosing the right product, or both, becomes straightforward.
How they fit with other business protection
Relevant life and keyman cover are two pieces of a wider business protection picture. Seeing where they sit alongside other products helps you build cover with no gaps and no overlap.
The main products work together like this:
- Relevant life insurance protects an employee’s family.
- Keyman insurance protects the business against losing a key person.
- Shareholder protection funds the buyout of an owner’s shares if they die.
- Business loan protection repays company borrowing if a guarantor dies or is critically ill.
Each answers a distinct risk, which is why larger or more established businesses often hold several. If you co-own your company, our guide to shareholder protection insurance explains how that cover keeps ownership stable, a question keyman and relevant life cover do not address.
A simple way to decide
If you are unsure which you need, start with the question of who you are protecting. Wanting to look after a family points to relevant life cover, while protecting the business points to keyman cover.
From there, consider whether you also need to protect ownership or borrowing, which calls for shareholder or loan protection. Mapping each risk to the product that answers it usually makes the right combination obvious.
If you are still unsure, a short conversation with a broker can save a lot of second-guessing. Setting out who depends on the business, who owns it and what it owes quickly reveals which policies are genuinely needed and where any gaps lie.
Your next step
Relevant life and keyman insurance are not rivals; they protect different people against different risks. Relevant life cover looks after an employee’s family, while keyman cover protects the business itself, and many firms benefit from holding both. As an FCA-authorised brokerage, we help UK businesses work out which cover fits and structure it correctly. Start on our keyman insurance page to discuss business protection and request a tailored quote for the cover your business needs.
Frequently Asked Questions
Relevant life insurance protects an employee’s family, paying out to their loved ones if the employee dies. Keyman insurance protects the business, paying the company if a key person dies or becomes critically ill. The company usually pays both, but the payouts go to entirely different places.
The employee’s family or chosen beneficiaries receive the payout, usually through a trust. The business pays the premiums but never receives the money, which is what makes relevant life cover a personal benefit rather than business protection.
Yes. Relevant life insurance is designed to be paid for by the employer. Premiums are generally an allowable business expense and usually are not treated as a taxable benefit-in-kind for the employee, provided the policy meets the qualifying conditions, but you should confirm your position with an accountant.
It is similar in effect but works differently. Death in service is usually a group scheme covering many employees, while relevant life insurance is an individual policy, often used by smaller companies or directors who cannot access a group scheme. Both pay the family rather than the business.
Yes, and many businesses do. The two cover different risks, so the same director can be insured under a relevant life policy that protects their family and a keyman policy that protects the business. The payouts go to different places, so the cover is complementary rather than duplicated.
They are taxed differently because they do different jobs. Relevant life payouts are usually free of income tax and typically outside the estate, while keyman payouts are often taxed as a trading receipt where premiums were allowed. Neither is simply better, and the right choice depends on what you are protecting and your circumstances.
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