Can income protection be paid by a company?

Is it possible for income protection insurance premiums to be paid for by a company?

Question asked by Ian Marlow
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Answered by Tom Conner

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 and set-up implications to consider.

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.

Company paid income protection

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 after tax income and the benefit paid out by the insurer is free from income tax. With this option the employee is the plan owner.

With the personal plan option, the employee’s salary could be increased to cover the premiums or the company could pay the premiums and the premium amounts represent a P11D benefit for the employee.

The second option is for an executive income protection plan which is paid for by the company and the benefit paid out by the insurer is paid to the company, who would then pay the employee via PAYE. With this option the company is the plan owner.

With an executive plan 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 amount so that the net payout represents around 50% of gross earnings (with an executive policy it is possible to cover up to 80% of gross earnings).

Personal vs Executive Income Protection

Naturally, with the executive option the premiums are far higher than on a personal plan as a larger amount needs to be insured to cover the tax payable on any benefit received. However, for a non-shareholding employee it is usually possible to expense the premiums as a business cost.

Thus, it is important to run through with your accountant to establish which option is the most cost effective.

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This information does not constitute financial or other professional advice. You should consult your professional adviser or contact us directly on 02084327333 should you require financial advice. It is important to ensure any insurance policy you take out is suitable for your needs.
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