Is it possible for Income Protection insurance premiums to be paid for by a limited company?
Yes, it is possible for the premiums on an Income Protection plan to be paid for by a company. However, there are a number of important tax implications and there are only a select few insurers who have policies which are designed to be set-up in this way.
Firstly, you should always consult your accountant on matters of taxation and a final decision will rest with the local inspector of taxes. The information here just sets out the various options for setting up cover.
When taking out an Income Protection policy there are two options to choose from. The first option is for a personal plan which is paid for out of your net income and so the benefit paid out is free from income tax. With this option the individual is the plan owner.
The second option is for an Executive Income Protection plan which is paid for by the company and any claim is paid out by the insurer to the limited company, who would then pay the employee via PAYE. With this option, the company is the plan owner.
With an executive plan usually, both income tax (and national insurance contributions) would need to be paid on the benefit should a claim arise. For this reason, it is necessary to cover a larger proportion of earnings to take into account the tax implications. With most Director Income Protection policies, you can cover up to 80% of your earnings.
With the executive option, the premiums are higher than on a personal plan as a larger amount needs to be insured to cover the tax payable on any benefit received. However, the premiums are paid for directly by the business.
When considering your options it’s important to discuss with your accountant to establish which option is the most cost-effective for you.
If you need help setting up your Income Protection Insurance and want to make sure you have the most suitable policy then please do not hesitate to pop us a call on 02084327333 or email email@example.com.
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