Executive income protection for limited company directors
Executive income protection allows your limited company to pay for cover that can replace part of your income if illness or injury stops you working.
Premiums may qualify for Corporation Tax relief and are not normally treated as a benefit-in-kind.
Why limited company directors choose executive income protection
If you run your own company, your earnings will often depend on your ability to continue working. There may be no employer sick-pay arrangement beyond what your company can afford to provide.
Executive income protection is designed to help address this risk.
- Company-funded premiums: The policy premiums are paid directly by your limited company rather than from your personal, post-tax income.
- Potential Corporation Tax relief: Premiums may be deductible when calculating the company’s taxable profits, provided the policy is arranged correctly and meets the relevant conditions.
- No benefit-in-kind in most cases: The premiums are not normally treated as a taxable benefit for the insured director or employee.
- Cover for salary and dividends: Depending on the insurer and policy terms, cover may be based on both your PAYE salary and dividend income.
- Flexible policy options: You can select a deferred period, benefit level and payment term that reflect your income and financial commitments.
- Continued financial support: A successful claim can help the company maintain payments to you while you are unable to carry out your occupation.
How executive income protection works
Unlike a personal income protection policy, an executive policy is taken out by your limited company.
The company pays the premiums and normally receives any claim payments. If illness or injury leaves you unable to work, payments can begin once the chosen deferred period has ended and the claim has been accepted.
The company can then use the proceeds to continue paying you.
For more information on waiting periods, read our guide to executive income protection deferred periods.
The tax treatment depends on how the policy is structured and how the claim proceeds are used. See our guide to executive income protection tax for more information.
How do you set up an executive income protection policy?
- Calculate the income you want to protect: Review your salary, dividends and regular financial commitments. Our guide to how much income protection you may need explains what to consider.
- Choose a deferred period: This is the period between becoming unable to work and the start of claim payments. A longer deferred period will normally reduce the premium, but you will need enough savings or company funds to cover the gap.
- Select the benefit term: You may be able to choose short-term cover, which pays for a fixed period, or long-term cover, which can continue until you recover or reach the policy end date. Read our comparison of short-term vs long-term income protection.
- Compare policies: Complete our executive income protection quote form. Our FCA-regulated partner, Broadbench Ltd, can compare suitable policies and explain the available options.
- Complete the application: Your occupation, income, health and lifestyle form part of the underwriting process. Once accepted, the policy is established in the company’s name and the premiums are paid from the business account.
What can an executive policy cover?
Executive income protection can usually cover a proportion of the income you received before becoming unable to work.
Depending on the insurer, this may include:
- Your PAYE salary.
- Dividend income linked to your work for the company.
- Employer National Insurance contributions.
- Employer pension contributions.
- Certain benefits provided through the company.
Insurers apply their own limits and methods when calculating cover. Dividends can be treated differently, particularly where company profits fluctuate or where dividends are shared with another shareholder.
For more information, read our guide to salary vs dividends for income protection.
Executive income protection and personal income protection
Executive and personal income protection can both provide an income if illness or injury leaves you unable to work, but they are set up differently.
With executive income protection, the company owns and pays for the policy and normally receives any claim payments. Premiums may qualify for Corporation Tax relief.
With personal income protection, you own the policy yourself and pay the premiums from your post-tax income. A successful claim is normally paid directly to you tax-free.
For a full comparison, read our guide to executive vs personal income protection.
Common questions
Is executive income protection tax deductible?
Premiums paid by a limited company may be treated as an allowable business expense, provided the policy is arranged for a genuine business purpose and satisfies the relevant tax rules.
This can reduce the company’s taxable profits and, in turn, its Corporation Tax liability. Tax treatment is not automatic, so check the position with your accountant.
Is executive income protection a benefit-in-kind?
Where the company owns the policy and receives any claim benefit, the premiums are not normally treated as a benefit-in-kind for the insured director or employee.
This means there is generally no personal Income Tax or employee National Insurance charge on the premiums.
Can executive income protection cover dividends?
Many executive policies can take account of both salary and dividends when calculating the available benefit.
The insurer may ask for company accounts, tax records or other evidence showing that the dividends are supported by the company’s trading profits.
For more information, read our guide to salary and dividends for income protection.
How are executive income protection claims taxed?
A successful claim is normally paid to the limited company and treated as taxable income.
The company can then use the money to continue paying the insured director or employee. Salary payments remain subject to PAYE and National Insurance.
See our guide to executive income protection tax for more detail.
Does executive income protection cover losing a contract?
No. Executive income protection pays where illness or injury prevents you from working and you meet the policy’s definition of incapacity.
It does not cover redundancy, contract termination, business failure, gaps between assignments or a general reduction in available work.
For more information, read our guide to executive income protection exclusions.
Can a one-person limited company take out executive income protection?
Yes. A one-person limited company can potentially arrange executive income protection for its director.
The available level of cover will depend on the director’s earnings, occupation and the insurer’s underwriting requirements.
For more information, read our guide to who is eligible for executive income protection.
Compare executive income protection policies
The cost and terms of executive income protection vary according to your age, health, occupation, income and the cover you choose.
Our FCA-regulated partner, Broadbench Ltd, can compare policies from leading insurers and explain how salary and dividends are treated.