Relevant life insurance for accountants
Many accountants advise clients on tax efficiency every day, yet a surprising number still pay for their own life insurance from taxed personal income.
For accountants who operate through a limited company, a relevant life policy can often provide exactly the same protection while allowing the company to fund the premiums instead.
If you run an accountancy practice or consultancy through a limited company, relevant life insurance can be one of the most tax-efficient ways to arrange life cover. In many cases, premiums qualify for corporation tax relief, there’s no benefit-in-kind charge, and neither employer nor employee National Insurance is payable on the premiums.
Instead of paying for life insurance from personal income, the company pays the premiums. For many accountants, this can make life cover considerably more tax efficient than arranging an equivalent personal policy.
Which accountants can benefit?
Relevant life insurance is designed for directors and employees of limited companies, making it suitable for many accountants who run their own incorporated practice or consultancy.
This may include:
- owners of independent accountancy practices
- sole director accountancy firms
- tax advisers trading through limited companies
- management accountants working as consultants
- forensic accountants and specialist advisers operating through their own companies
It’s the company structure that matters, not the profession. If an accountant is employed by their own limited company, relevant life insurance may be available.
Why accountants often prefer company-funded life insurance
Most accountants are already familiar with the advantages of taking remuneration efficiently through a limited company.
The company pays the premiums instead of the accountant paying for the policy personally. For many accountants, that can make relevant life insurance considerably more tax efficient than taking out a personal policy.
In many cases:
- the premiums may be deductible when calculating the company’s corporation tax liability
- there is normally no benefit-in-kind charge on the insured director or employee
- employer and employee National Insurance contributions do not usually apply
- the proceeds are generally paid through a discretionary trust to the chosen beneficiaries
Find out more about the potential tax benefits of relevant life insurance.
Salary, dividends and the level of cover
Many directors of accountancy firms remunerate themselves with a modest salary, then extract further profits as dividends.
A common misconception is that insurers only consider salary levels when calculating the amount of life cover available.
In practice, many insurers will also consider regular dividend income received from the applicant’s company, allowing the policy to better reflect overall remuneration.
You can read more in our guide covering salary and dividends as proof of income.
How the policy is structured
A relevant life policy is owned by the company rather than the individual.
The company pays the premiums, while the accountant remains the person insured under the policy.
The policy is normally written into a discretionary trust. If the insured person dies during the policy term, the benefit is typically paid directly to their designated beneficiaries rather than becoming part of the company’s assets.
If you’re unfamiliar with the structure, our guide explains how relevant life insurance works.
Corporation tax and HMRC guidance
For obvious reasons, accountants will naturally want to understand precisely how relevant life premiums are treated for tax purposes before going any further.
Although every business should obtain professional advice, HMRC generally accepts that premiums may qualify as an allowable business expense where the policy is taken out wholly and exclusively for the purposes of the trade and satisfies the conditions for a relevant life policy.
You can read more about the technicalities in BMI45525.
You may also find our guide on whether relevant life insurance is a business expense useful.
Relevant life insurance or a personal policy?
Many accountants arrange personal life insurance early in their career before later incorporating their business.
Once they begin operating through a limited company, it’s often worth reviewing whether that policy is still the most tax-efficient option.
Although both policies provide life cover, the way their premiums are funded differs significantly.
With personal life insurance, the premiums are paid from post-tax income.
With a relevant life policy, they are normally paid by the company.
For many owner-managed accountancy firms, that difference can significantly reduce the overall cost of maintaining the same level of protection.
You can compare both options in our guide to relevant life insurance vs personal life insurance.
When relevant life insurance may not be suitable
Relevant life insurance isn’t appropriate in every situation.
It may not be available where:
- the accountant operates as a sole trader
- they are an equity partner without an employing limited company
- they already receive suitable death-in-service benefits through another employer
Where a relevant life policy isn’t available, a personal life insurance policy may provide a more appropriate solution.
Getting a quote
Before recommending a policy, an adviser will take some time to understand your personal circumstances and will usually consider:
- how your accountancy business is structured
- your salary and dividend arrangements
- how much cover you’re looking for
- whether a relevant life policy is suitable
- which insurers best fit your circumstances
If you’d like to see what’s available, you can request a no-obligation quote from Broadbench using the form below.