Income Protection · Company directors 2026

Executive income protection for company directors (UK 2026)

Executive income protection is a company-owned policy that pays a monthly benefit if a director or key employee cannot work through illness or injury. Because the limited company owns and pays for it, cover can reach a higher share of your income — including dividends — and the premiums are usually an allowable business expense. Here is how it works, how it is taxed, and how it differs from a personal plan.

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Quick answer

The short version

Company-owned cover: the limited company takes out and pays for the policy on the life of a director or key employee.
Covers salary and dividends: executive plans can insure up to around 80% of remuneration — typically salary plus dividends — higher than a personal policy’s 50–65%.
Tax-efficient premiums: premiums are usually an allowable business expense and are not normally treated as a P11D benefit-in-kind for the individual.
Benefit is taxed on the way out: a claim is paid to the company, then passed to the employee through payroll (PAYE), where it is taxed as income.

How it compares

Executive vs personal income protection

Feature	Executive (company-paid)	Personal (own-paid)
Who owns and pays	The limited company	You, from personal income
Maximum cover	Up to around 80% of remuneration, usually salary plus dividends	Typically 50–65% of earnings
Can it include extras?	Employer pension contributions and employer National Insurance can often be added	Based on personal earnings only
Premiums	Usually an allowable business expense; not normally a P11D benefit-in-kind	Paid from your taxed personal income
How a claim is paid	To the company, then to you via payroll (taxed as income)	To you, normally tax-free
Typical monthly cap	Often up to around £25,000 per month	Insurer limits apply

Indicative orientation only — not a quote. Cover limits, definitions of income and tax treatment vary by insurer and by your circumstances.

How it works

Why directors use a company-owned plan

Many company directors pay themselves a small salary and take the rest of their income as dividends. A standard personal income protection policy usually insures earnings and can struggle to reflect a dividend-heavy pay structure, so the covered amount may be lower than expected. An executive plan is designed around this: the company owns the policy and can insure a combination of salary and dividends drawn from the business, often up to around 80% of that total — and, on many plans, employer pension contributions and employer National Insurance on top.

If a valid claim is made, the insurer pays the monthly benefit to the company, which then passes it to the director or employee through the payroll. This keeps the money flowing through the business in the normal way. As with any income protection, you choose a deferred period — the wait before payments start — and the policy term, and the benefit continues while you remain unable to work, up to the end of the term or your chosen payment period. See the income protection hub for how the core cover works.

The tax picture

How executive income protection is taxed

The tax treatment is one of the main reasons directors consider an executive plan, but it cuts both ways. HMRC generally accepts that premiums can be treated as an allowable business expense under the “wholly and exclusively” test (HMRC’s manuals at BIM46035 are the usual reference), which can reduce the company’s Corporation Tax bill. The premiums are also not normally treated as a benefit-in-kind, so in most cases there is no P11D entry and no personal Income Tax or National Insurance on the premium itself.

The trade-off comes at claim time. Because the company received tax relief on the premiums, a benefit paid out is taxable: it is treated as trading income of the company and then taxed as employment income when paid to you through PAYE. That is different from a personal policy, where you pay premiums from taxed income and the benefit is normally received tax-free. Whether the company or personal route works out better depends on your salary/dividend split, your marginal rates and your accountant’s view — this page is information, not tax advice.

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Is it right for your set-up?

When an executive plan tends to fit

Executive income protection tends to suit limited-company directors and key employees — particularly those paid mostly in dividends, where a personal policy would insure only a small salary. It can also appeal where you want the business to fund cover tax-efficiently, or to protect a key person whose absence would hurt trading. It is generally less relevant to sole traders and unincorporated freelancers, who have no company to own the policy and usually take a personal plan instead; contractors working through their own limited company can often use either route.

Whichever structure fits, the sensible starting point is to work out how much monthly benefit you actually need — see how much income protection you need — and to match the deferred period to your reserves. An adviser or accountant can then confirm the company-versus-personal decision for your figures.

Common questions

Executive income protection FAQs

What is executive income protection?

It is an income protection policy owned and paid for by a limited company on the life of a director or key employee. If that person cannot work through illness or injury, the insurer pays a monthly benefit to the company, which passes it to the individual through payroll. It is designed to reflect how directors are paid, including dividends, which a personal policy can struggle to cover.

Can it cover dividends as well as salary?

Yes. Executive plans can typically insure a combination of salary and dividends drawn from the company, usually up to around 80% of that total — higher than the 50–65% common on personal policies. To include dividends you generally need to be a working director genuinely contributing to the business. Each insurer defines “income” slightly differently, so check the wording.

Are the premiums tax deductible for the company?

In most cases, yes. HMRC generally accepts that premiums can be treated as an allowable business expense under the “wholly and exclusively” test (see HMRC’s BIM46035), which can reduce the company’s Corporation Tax. This is not automatic in every situation, so your accountant should confirm it for your company before you rely on the relief.

Is the premium a benefit-in-kind for the director?

Usually not. Executive income protection premiums are not normally treated as a P11D benefit-in-kind, so in most cases there is no personal Income Tax or National Insurance to pay on the premium itself. As with the Corporation Tax point, treatment depends on how the policy is set up, so confirm it with your accountant.

Is the benefit taxed when it is paid out?

Yes. Because the company received tax relief on the premiums, a claim is taxable: it is treated as trading income of the company and then taxed as employment income when paid to you through payroll (PAYE). This differs from a personal policy, where premiums come from taxed income and the benefit is normally received tax-free.

Can it also cover pension contributions and employer National Insurance?

On many executive plans, yes. Alongside salary and dividends, insurers often allow you to add cover for employer pension contributions and the employer National Insurance the business would otherwise pay. This can keep those commitments funded during a long absence, but it increases the covered amount and therefore the premium. Availability varies by insurer.

Executive or personal income protection — which is better?

Neither is universally better — it depends on your set-up. Directors paid largely in dividends often find an executive plan covers more of their real income tax-efficiently, while sole traders and employees without a company usually take a personal plan whose benefit is tax-free. The right answer turns on your salary/dividend split, marginal tax rates and cash flow, so this is a decision to confirm with an accountant or adviser rather than a rule of thumb.

Who can take out an executive plan?

Executive income protection is for limited companies covering their directors or key employees — the company must own and pay for the policy. It is not available to sole traders or unincorporated freelancers, who have no company to hold the policy and would take a personal plan instead. Contractors operating through their own limited company can usually choose either route.

Information only — not financial or tax advice. My Insurance Expert is not an FCA-authorised intermediary and does not arrange or sell policies. Tax treatment depends on your circumstances and the rules can change; confirm any tax point with a qualified accountant. Figures are indicative ranges for orientation, not quotes. Last updated: 2026-07-05

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