Protecting your livelihood

Being self-employed can provide a fantastic way of life and as business owners you will have learnt the art of always expecting the unexpected. However, what if the unexpected happens outside of work?

If you are ever unable to work due to sickness or injury you will find yourself wishing you were back in the safety of an employed position with sick pay coming in.

Don’t panic, you are not alone. Many of our clients are directors of their own limited companies and in this situation, there are plenty of options available to protect yourself.

Income Protection Insurance is one and this can either be paid by the individual out of post-tax income or paid for by the company. Which method is more cost-effective comes down to the policy choice (either a personal or executive plan) and the respective tax implications.

Personal Income Protection

With this option the policy is taken out and owned by an individual and is paid for from a personal bank account out of the individual’s net income. In this situation the monthly benefit payable to the individual upon a claim would be free from income tax under current regulations because you’ve already paid tax on the money used to pay premiums.

However, it may also be possible to take out a personal plan and pay the premiums through a limited company. Whether the premiums can be classified as a business expense would come down to the opinion of the local inspector of taxes and your accountant, so it’s important to have this discussion with them.

Executive Income Protection

Executive Income Protection is commonly taken out either by company directors looking to protect themselves or by firms wishing to offer this cover to a small number of specific staff as an employee benefit (as opposed to covering a larger number of staff under a Group Income Protection scheme).

With this type of policy, the plan is actually owned by the business and any benefit paid out is paid back into the company to distribute accordingly. The business can then pay the individual the monthly benefit as a form of sick pay.

It should be noted that the pay-out would be treated as a trading receipt and taxed accordingly; this is why the level of cover needs to be grossed-up to leave an appropriate amount of income after tax for the director / employee (the benefit would be taxed as income for the employee).

It is never nice to think of a scenario where you may be out of action for a while, but it is essential to prepare should the worst happen. We can advise on what may be the most cost effective and appropriate choice for you and your business. Find a time that suits you in our diary and we can have a free, no obligation chat. Phone – 01284 770427 | Email –


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