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.
With executive income protection, your limited company funds the policy, and in many cases, the premiums can be treated as a business expense.
Why directors choose income protection
- Company-funded premiums: Your company pays the premiums, which in many cases are deductible against corporation tax.
- No benefit-in-kind in most cases: Where the company owns the policy, you are not usually taxed on the premiums.
- Cover for salary and dividends: Executive policies can cover both elements of your income, not just your PAYE salary.
- Flexible options: Choose the deferred period and benefit term that reflects how long you could manage without income.
- Maintains income if you cannot work: Helps replace lost earnings during periods of illness or injury.
How do you set up a new policy?
- Estimate cover: Work out your monthly income (salary and dividends) and how much of it you want to insure. Our guide to how much income protection you need explains how to approach this.
- Request quotes: Fill out our short form on the Get a quote page. Our FCA-regulated partner, Broadbench Ltd, will source quotes from a range of insurers.
- Application: When you proceed, the policy is set up in the company’s name and premiums are paid from the business account. There is typically no P11D reporting requirement.
Common questions
Is executive income protection tax-efficient?
In many cases, yes. Premiums paid by your company are often treated as a business expense, which can reduce your corporation tax bill. You will not usually pay income tax or National Insurance on the premiums. See our guide to income protection tax rules for directors for more details.
How are payouts taxed?
If your company makes a claim, the monthly benefit is paid to the business and treated as income. When you draw the funds as salary or dividends, normal taxation applies. Payouts from personally funded policies are typically tax-free because you have already paid tax on the premiums.
How much cover can I take out?
Executive policies can cover up to around 80% of your pre-incapacity salary and dividends, often subject to insurer limits. Personal plans typically cover less. See short-term vs long-term cover for more information on how benefit periods work.
Does income protection cover losing a contract?
No. Income protection only pays out if you are unable to work due to illness or injury. It does not cover redundancy, contract termination, or gaps between contracts.
What if I am not operating through a limited company?
If you are not running a limited company, you would normally take out a personal policy instead. You will not get corporation tax relief on the premiums, but any payout is typically tax-free.