Income protection for limited company directors
Income protection pays a monthly benefit if you’re unable to work due to illness or injury.
It does not cover loss of contract or redundancy.
As a director, you don’t get employer sick pay – if illness or injury stops you working, your income usually stops.
Your limited company can usually fund the policy, and in many cases, premiums are treated as a business expense, reducing Corporation Tax.
Why directors choose income protection
- Company-funded premiums: Your business pays the premiums, which in many cases are deductible against corporation tax.
- No benefit-in-kind: Where the company owns the policy, you aren’t taxed on the premiums and neither is your company.
- Cover for salary and dividends: Executive policies can often insure both elements of your income.
- Flexible options: Choose the deferred period and benefit term that suits your budget and how long you could cope without income.
- Protects your income and business continuity: Helps maintain cash flow if you’re unable to work for a period of time.
How setup works
- Estimate cover: Think about your monthly income (salary and dividends) and how much of it you’d like to insure. Our guide to how much income protection you need explains how to calculate the right level.
- Request quotes: Fill in our short form on the Get a quote page. Our FCA-regulated partner, Broadbench Ltd, will source quotes from leading insurers.
- Application: When you’re happy with a quote, your company applies for the policy. Premiums are paid from your business account. There is no P11D reporting requirement.
Common questions
Is executive income protection tax-efficient?
In many cases, yes. Premiums paid by your company are usually treated as a business expense, which can reduce your corporation tax bill. You won’t normally pay income tax or National Insurance on the premiums. Learn more in our guide to income protection tax rules for directors.
How are payouts taxed?
If your company makes a claim, the monthly benefit is paid to the business and treated as trading income. When you draw the funds as salary or dividends, normal taxation applies. Payouts from personally funded policies are tax-free because you’ve already paid tax on the premiums.
How much cover can I take out?
Executive policies can insure up to around 80% of your pre-incapacity salary and dividends, often with a maximum of £25,000 per month. Personal plans typically cover up to 65% of your income. See short-term vs long-term cover for more detail on benefit periods.
Does income protection cover losing a contract?
No. Income protection only pays out if you’re unable to work due to illness or injury. It doesn’t cover redundancy, contract termination, or a lack of work.
What if I’m not operating through a limited company?
If you’re not running a limited company, you would usually take out a personal income protection policy instead. You won’t get corporation tax relief on the premiums, but any payout is typically tax-free. Read more about income protection for contractors and freelancers.