Life insurance for architects working through limited companies

Many architects operate through limited company practices, particularly where they run their own design studios, provide consultancy services or undertake project-based architectural work. In these situations it is sometimes possible to arrange life insurance through the company itself rather than taking out a personal policy.

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 placed into a discretionary trust so that any payout goes directly to the insured architect’s chosen beneficiaries.

For architects who operate through incorporated practices, this structure can often make life insurance significantly more tax efficient than arranging a policy personally.

Why architects often operate through limited companies

The architecture profession includes many small design practices, consultancy firms and independent studios. It is therefore common for architects to operate through limited companies rather than as traditional employees.

This can occur in situations such as:

• running a small architectural practice or design studio
• providing architectural consultancy services to developers
• working as a specialist architect on heritage or conservation projects
• operating a landscape architecture or urban design practice

In these cases the architectural company invoices clients for design work, planning advice, drawings and project supervision. The architect typically receives income from the company through a combination of salary and dividends.

Because the architect is employed by their own company, certain employee benefits may be provided through that structure, including company funded life insurance.

How company paid life insurance works for architects

Where an architect works through a limited company, the business can sometimes arrange life insurance on their behalf. The policy is owned by the company and the premiums are paid directly by the business.

The policy is normally written into a discretionary trust. This means that if the insured architect dies while the policy is active, the benefit is paid directly to their beneficiaries rather than passing through the company.

This structure helps ensure that the payout reaches the architect’s family or dependants quickly and is not treated as part of the company’s assets.

For a full explanation of how these policies work, see our guide to what relevant life insurance is and how it works.

How insurers assess income for architects

Architects running limited company practices often receive income differently from traditional employees. Rather than receiving a fixed salary from an employer, income is usually paid into the company first.

Architectural practices generate revenue from activities such as:

• design commissions for residential or commercial buildings
• planning and development consultancy
• preparing architectural drawings and technical plans
• project management and site supervision

When assessing a life insurance application insurers will normally consider the architect’s overall remuneration rather than just PAYE salary.

This may include:

• director salary paid through the company payroll
• dividends taken from company profits
• accounts showing business income and stability

This allows insurers to understand the true income of the architect when determining how much cover may be appropriate.

You can read more about how this works here: can salary and dividends be used as proof of income?.

Situations where architects use company funded life cover

Company funded life insurance can be particularly relevant for architects who operate through their own incorporated practice.

Examples include:

• directors of small architecture studios
• architects working as consultants for property developers
• specialist architects focusing on conservation or restoration projects
• architects running multi-partner design practices

In these scenarios the architect’s income flows through the company, which means the business may be able to provide employee benefits such as life insurance.

Tax treatment of company funded policies

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 for the insured architect
• 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 normally outside the insured person’s estate for inheritance tax purposes.

More detail on this aspect is explained in our guide to relevant life insurance and inheritance tax planning.

Additional guidance on employment related benefits can also be found in HMRC’s Employment Income Manual: HMRC Employment Income Manual.

Comparing company funded cover with personal life insurance

When architects arrange life insurance personally, the premiums are normally paid from income that has already been subject to income tax and National Insurance.

With company funded life insurance the premiums are instead paid directly by the limited company.

For architects running incorporated practices this can make the effective cost of life cover significantly lower compared with an equivalent personal policy.

A detailed comparison of the two approaches can be found here: relevant life vs personal life insurance.

Situations where this structure may not apply

Company funded life insurance generally only applies where the architect genuinely operates through a limited company structure.

It may not be appropriate where:

• the architect is employed directly by a large architectural firm
• the individual works as a sole trader without a company
• there is no limited company involved in the business structure

In those cases a traditional personal life insurance policy may be more suitable.

Planning cover as an architect

Architects often have complex financial structures involving design practices, partnerships and project-based revenue streams. When arranging life insurance it is sensible to review how the practice is structured and how income is received.

An adviser will normally consider:

• the structure of the architectural practice
• salary and dividend income from the company
• the amount of cover required
• how the trust should be arranged for beneficiaries

This helps ensure that the policy is structured correctly and complies with HMRC rules.

If you want to estimate the cost of cover based on your age and income, you can try our relevant life insurance calculator.

If you would prefer to see potential policy options tailored to your circumstances, you can also request a relevant life insurance quotation through our adviser partner.