Directors of limited companies may qualify for an Executive Income Protection insurance policy instead of the traditional income protection plan.
The premiums for this type of plan are covered by the policyholder’s company instead of through their personal bank account.
This insurance product can be taken out individually, the same process as any sole trader or employee purchasing this kind of protection and paying for it independently.
An alternative for this could be taking out a specific income protection policy funded by the policyholder’s limited company.
The main benefit of approaching income protection in this way is the premiums for this coverage are classed as a trading receipt for the company and are not taxable as a P11D benefit.
Company directors often find this approach to income protection policies very appealing.
If the company has more than one director, it is important to discuss the options and document the agreement to purchase the coverage before placing an application.
When is Income Protection for Company Directors Taxable?
For those taking out a personal income protection plan and paying the premiums through their own bank account, the payout from this coverage will not be taxable, and the funds will be deposited into the policyholder’s personal bank account.
Click To Compare QuotesShould they choose the Executive Income Protection for the Company Director’s policy paid for through the company and are successful in filing and being awarded a claim, the money will be given to the company and paid out to the beneficiary as salary payments, which means it will be subject to taxes and NI.
How Much Income Protection Are Directors Eligible for?
Company directors will likely pay themselves either a straight salary or a combination of dividends and salary.
Many Income Protection for Company Director policies allow the policyholder to declare both dividends and salary as income as long as the payment of dividends stops when a claim is made.
Those seeking this type of policy should be careful to double-check what types of income fall into the eligible definition.
Some companies will look at the last year of income, while others will evaluate the previous 36 months of income when making certain insurance policy decisions.
Many personal income protection coverage policies will cover between 50 and 65 per cent of the policyholder’s income.
Still, Executive Income Protection for Company Directors policies will cover between 75 and 80 per cent of their income, assuming their benefits will be taxed when paid.
It is important to remember that even though the Executive Income Protection for Company.
Click To Compare QuotesA director’s policy will cover much more income than a personal income protection policy.
The policy essentially belongs to the company, which will receive the initial benefit payment and disperse it to the director.
Additionally, there may be an option to add a “company secretary” to the policy so that the company director can split their income.
Suppose the secretary position is not essential for the business. In that case, the director may employ their spouse to manage the financial books, allowing some of their dividend income to be added to another form of eligible income.
This is not the case for every company or income protection insurance provider, so it is very important to check with a financial advisor or trusted insurance broker to ensure that the insurers being considered offer this plan.