Comparison · Insurance · 2026
Income Protection Through a Limited Company vs Personally 2026
Company directors and contractors operating through a limited company can choose between an executive income protection policy paid for by the company, or a personally-owned policy paid from taxed income. The choice affects Corporation Tax relief, benefit-in-kind exposure, and how much of a claim you actually keep. Here is the 2026 comparison.
TL;DR - 30-Second Summary
- - Company (executive) policy: premiums are a deductible business expense, no BIK, but claim payouts are taxed as PAYE income
- - Personal policy: premiums paid from taxed income, but claim payouts are generally tax-free
- - Bigger cover: company policies can insure total remuneration including dividends, useful for owner-directors
Side by Side: Company vs Personal Income Protection
| Feature | Limited Company Policy | Personal Policy |
|---|---|---|
| Premium tax treatment | Deductible, reduces Corporation Tax | Paid from taxed personal income |
| Benefit-in-kind on premium | Usually none (if structured correctly) | N/A |
| Tax on claim payout | Taxed as PAYE income and NI | Generally tax-free |
| Can cover dividend income | Yes, often covers total remuneration | Usually salary-based only |
| Portability | Tied to the company | Stays with you |
Worked Example: £3,000/Month Claim
If a company policy pays £3,000 a month to the company, and the director then draws this as salary, income tax and employee NI reduce the amount actually received, though the company also saves employer NI/Corporation Tax across the arrangement. A personal policy paying the same £3,000 a month, funded from a policy taken out with post-tax premiums, is typically received in full, tax-free, giving a higher net monthly benefit during a claim.
Who Should Choose What?
Consider a company policy if...
- - You want to reduce Corporation Tax with a deductible premium
- - You take significant dividend income you want covered
- - The company is stable and unlikely to close soon
Consider a personal policy if...
- - You want the claim payout to be tax-free
- - You want cover that follows you regardless of your business
- - You are inside IR35 or a sole trader
Frequently Asked Questions
What is "executive income protection"?
Executive income protection (also called relevant life-style group income protection for directors) is a policy taken out and paid for by a limited company on behalf of a director or employee. Premiums are typically an allowable business expense, and the policy usually pays a benefit to the company, which then pays the director/employee via PAYE.
Are limited company income protection premiums tax deductible?
Generally yes. Premiums paid by the company are usually treated as an allowable business expense, reducing Corporation Tax (19% or 25% depending on profit level in 2026/27), provided the policy is set up correctly (typically written for the benefit of the company, not directly for the individual).
Do I pay a benefit-in-kind charge on a company income protection policy?
Executive income protection structured correctly is not usually treated as a benefit-in-kind, unlike some other company-paid personal insurance policies, because the policy technically insures the company against the cost of losing a key employee's services, and the payout is then run through payroll as income when claimed.
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Is a personally-owned income protection premium tax deductible?
No. Premiums for a personal income protection policy are paid from your net (after-tax) income and receive no income tax relief, unlike pension contributions.
How is a claim payout taxed under each structure?
Under an executive/company policy, the payout is paid to the company and then to you as salary through PAYE, so it is subject to income tax and National Insurance in the normal way. Under a personal policy, the payout (if the premiums were paid from taxed personal income) is generally paid tax-free.
Which gives a larger net benefit if I claim?
A personally-owned policy usually delivers more of the payout to you directly, since it is not passed through PAYE and NI. A company policy is cheaper to fund (pre-tax premiums, no BIK) but the claim itself is taxed as income when paid out, so the net benefit received can be lower depending on your tax band at the time of claim.
Can a company policy cover more than my normal salary?
Yes, executive income protection can often be structured to cover total remuneration (salary plus dividends plus benefits), which is useful for owner-directors who take a low salary and high dividends, since a personal policy based on PAYE salary alone might significantly under-insure their real income.
What happens to a company income protection policy if I close the company?
The policy is owned by the company and generally cannot simply transfer to you personally without requalifying — if you close or sell the company, the policy typically ends, whereas a personal policy stays with you regardless of your employment or business structure.
Is IR35 status relevant to which structure I should choose?
Yes. Contractors caught by IR35 (inside IR35) are taxed largely as employees and gain less benefit from company-structured insurance products, since most of their income already passes through payroll taxation, making a personal policy comparatively more straightforward.
Should sole traders use a company or personal income protection policy?
Sole traders (unincorporated) cannot access company income protection structures since there is no separate legal company to pay the premium — they would take out a personal income protection policy, with premiums paid from post-tax profit.
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Disclaimer: Tax treatment described reflects general HMRC practice for 2026/27 and can depend on exact policy wording and structure. This is educational information, not tax or insurance advice. Speak to a protection insurance adviser and your accountant before choosing a structure.
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