Answered by Tom Conner
Firstly, it is always wise to consult your accountant on matters of taxation and any final decision will always rest with the local tax inspector.
Income Protection taken out personally tends to be paid from your net income and as a result and benefit payable should a claim arise is paid tax-free.
Be careful, your benefit may be taxed
If you wish to put your Income Protection premiums through your limited company as a trading expense it is usually wise to take out an Executive Income Protection rather than a personal plan.
With a personal plan tax is paid on the premiums (which are paid from after-tax earnings) and the benefit is tax free; however, with an executive/directors’ plan the premiums can usually be expensed but the benefit paid out will incur income tax.
As such, with an executive plan the insurers will usually allow you to cover up to 80% of gross earnings rather than up to 60% with a personal plan. This is because you would need to insure a higher amount to cover the tax.
Essentially, with an executive plan the business takes out the plan and pays the premiums on your behalf but any benefit paid out would be paid to the business, which would then pay you via the Pay As You Earn (PAYE) system.
Frequently Asked Income Protection Insurance Questions
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