Life insurance for dentists with a limited company practice
Many dentists now operate through limited company structures, particularly where they run private dental practices or provide specialist services through their own business. In these situations, it is sometimes possible to arrange life insurance through the company rather than personally.
A relevant life policy allows a limited company to provide life cover for a director or employee. The company pays the premiums and the policy is written into trust so that any payout goes directly to the insured person’s chosen beneficiaries.
For dentists who operate through their own company, this structure can often make life insurance significantly more tax efficient than arranging a traditional personal policy.
Why many dentists operate through limited companies
Over the past decade a growing number of dentists have incorporated their practices or operate through limited company structures for certain parts of their work.
This can occur in several situations:
- running a private dental practice through a limited company
- providing specialist dental services through a company
- operating as a consultant dentist or specialist practitioner
- running a dental group with multiple surgeries
In these arrangements the limited company invoices patients or clients and the dentist typically takes income through a combination of salary and dividends.
This structure can also allow the company to provide employee benefits, including company funded life insurance.
How company funded life insurance works for dentists
Where a dentist is employed by their own limited company, the business can sometimes take out a life insurance policy on their behalf. The company owns the policy and pays the premiums.
The policy is usually written into a discretionary trust. This means that if the insured dentist dies while the policy is active, the benefit is paid directly to their beneficiaries rather than passing through the company.
You can read more about how these arrangements work in our guide: what is relevant life insurance?
How insurers assess income for dentists
Dentists who operate through limited companies often receive income in a different way to traditional employees.
Rather than receiving all earnings through PAYE, income usually flows into the company first before being paid to the dentist.
When assessing life insurance applications insurers normally consider the dentist’s overall remuneration. This may include:
- director salary paid through PAYE
- dividends taken from company profits
- evidence of business income and contracts
This approach helps insurers understand the true income level when determining the appropriate amount of cover.
You can read more about how insurers view this structure here: can salary and dividends be used as proof of income?
Situations where dentists use company funded cover
Company funded life insurance can be particularly relevant for dentists in situations such as:
- a dentist running a private practice through a limited company
- a specialist orthodontist or implant dentist operating through their own company
- a dentist who owns or manages multiple surgeries
- a practitioner providing consultancy services to dental clinics
In each of these cases the dentist is effectively employed by their own company, which means certain employee benefits may be provided through that structure.
Tax treatment of company paid life insurance
Where the policy meets HMRC requirements, the premiums are normally treated as a business expense for the company.
This means they may be deductible when calculating corporation tax.
In addition:
- premiums are usually not treated as a benefit in kind
- no employee or employer National Insurance normally applies
- payouts are generally paid to beneficiaries free of income tax
Because the policy is written into trust, the benefit is also usually outside the insured person’s estate for inheritance tax purposes.
You can read more about this in our guide to relevant life insurance and inheritance tax planning.
Further information about the tax treatment of employment related benefits can be found in HMRC guidance: HMRC Employment Income Manual.
How this compares with personal life insurance
When dentists buy life insurance personally, the premiums are normally paid from income that has already been subject to income tax and National Insurance.
With company funded policies the premiums are instead paid by the business.
For many dentists operating through limited companies this can significantly reduce the effective cost of life cover compared with an equivalent personal policy.
You can see a detailed comparison here: relevant life vs personal life insurance.
Situations where it may not apply
Company funded life insurance works best where the dentist genuinely operates through a limited company structure.
It may not be suitable where:
- the dentist is employed directly by an NHS practice
- the individual operates as a sole trader
- there is no limited company involved
In these situations a traditional personal life insurance policy may be more appropriate.
Getting advice as a dentist
Dentists often have complex financial structures involving practice ownership, partnerships and company income.
Before arranging life insurance through a company it is sensible to review the structure of the business and the level of income being generated.
An adviser will typically consider:
- how the dental practice is structured
- the dentist’s salary and dividend income
- the level of life cover required
- how the trust should be set up for beneficiaries
This ensures the policy is structured correctly and complies with HMRC rules.
If you want to estimate potential premiums you can use our relevant life insurance calculator.
You can also request a quote here: get a relevant life insurance quote.