Do I Pay Tax on Income Protection Benefits?

I’m thinking about taking out an Income Protection policy. I can’t seem to find any information about how I pay tax on the benefit if i make a claim?

Question asked by Richard Wright
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Answered by Tom Conner

Income Protection payouts are generally tax-free. For personal policies, as you pay for the premiums yourself from your net income then the policy has already effectively been taxed. This is why most insurers generally only allow you to insure 65% of your gross income as it works out as approximately the same as your net income.

Some company directors pay for their income protection premiums via their business. This is known as Executive Income Protection.

Here, the business pays the premiums and they’re usually a tax-deductible business expense. This means the policy hasn’t been taxed at the payment stage and so is generally taxable as income on a claim. Benefits will be paid back into the business as the company owns and pays for the policy and on distribution from there to the individual insured will be taxed accordingly.

If you chose this option it would be best to consult a tax adviser or accountant for advice.

If you would like any further information on income protection please contact our insurance advisers on 02084327333. We have access to insurance plans from the whole market so can find the policy which is best for you. You can also get an online quote for Income Protection on our website.

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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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