Income protection vs sick pay for company directors
Statutory Sick Pay provides limited short-term support if you’re unable to work due to illness.
Executive income protection can provide a much larger regular benefit and, depending on the policy, continue paying for several years or until retirement.
For limited company directors, the difference can be particularly significant. SSP is calculated based on PAYE earnings and does not replace dividend income, whereas executive income protection may take into account both salary and work-related dividends.
From 6 April 2026, Statutory Sick Pay is payable from the first qualifying day of illness at up to £123.25 a week, or 80% of average weekly earnings if lower. It can be paid for up to 28 weeks.
Income protection vs sick pay at a glance
| Feature | Statutory Sick Pay | Executive income protection |
|---|---|---|
| Amount paid | Up to £123.25 a week or 80% of average weekly earnings if lower | Based on an agreed proportion of insured earnings |
| Dividend income | Not included | May be included, subject to insurer rules |
| When payments begin | From the first qualifying day of illness | After the selected deferred period |
| Maximum duration | 28 weeks | A fixed claim period or potentially until retirement |
| Who pays? | The limited company as employer | The insurer pays the limited company |
How Statutory Sick Pay works for directors
A limited company director may qualify for Statutory Sick Pay where they are employed by the company and meet the normal eligibility conditions.
For the 2026/27 tax year, SSP is paid at £123.25 a week or 80% of the employee’s average weekly earnings, whichever is lower. It is paid by the company for up to 28 weeks and is subject to Income Tax and National Insurance in the same way as salary.
The removal of the Lower Earnings Limit from April 2026 means an employee no longer needs to earn a minimum weekly amount to qualify. However, directors who take a small PAYE salary may receive less than the full weekly rate because SSP is calculated from employment earnings.
Dividends are not salary and therefore do not increase SSP entitlement. A director who receives most of their income through dividends could consequently experience a substantial fall in household income while unable to work.
The current rates and eligibility rules are available from GOV.UK.
How executive income protection differs
Executive income protection is arranged by the limited company to cover a director or employee if they are unable to work due to illness or injury.
The company owns the policy and pays the premiums. If a valid claim is made, the insurer pays a regular benefit to the company, which can use the money to continue remunerating the insured director.
Depending on the insurer, the benefit calculation may include:
- The director’s PAYE salary.
- Dividends attributable to their work.
- Employer National Insurance costs.
- Employer pension contributions.
This can provide considerably broader protection for directors who derive income from a mix of salary and dividends.
Payments begin after the selected deferred period, such as 4, 8, 13, or 26 weeks. A director may choose a period that takes into account their savings, any company sick pay, and the amount of time the business could continue paying them without insurance.
How long can income protection pay?
SSP ends after 28 weeks, even if the director remains unable to work.
Executive income protection can be arranged with a limited claim period, commonly one, two or five years, or with long-term cover that can continue until recovery, retirement or the end of the policy term.
Our guide to short-term and long-term income protection compares the two structures.
Does the company receive tax relief?
Executive income protection premiums may qualify as an allowable business expense where the policy is arranged for a genuine business purpose and meets the relevant tax conditions.
Claim payments are normally made to the company and treated as taxable business income. Any salary subsequently paid to the director is taxed through PAYE in the usual way.
See our guide to executive income protection tax for more detail about premiums, claim payments and benefit-in-kind treatment.
Can you rely on SSP alone?
SSP provides a statutory minimum rather than full income replacement. Even the maximum rate is unlikely to cover the normal expenditure of many company directors, and it does not reflect dividends or other income taken from the business.
A director may be able to rely on savings or continued support from the company during a short absence. A prolonged illness is more difficult, particularly where the director generates a substantial proportion of the company’s revenue.
Executive income protection can fill this gap by providing a benefit that is more closely linked to the director’s usual remuneration and continues beyond the 28-week SSP limit.
The appropriate policy will depend on your salary and dividend structure, existing savings, business finances and how long you could manage before insurance payments were needed.