Income protection for limited company directors If you have clients that operate through a limited company, their insurable income is generally based on their salary plus dividends. Most director-shareholders pay themselves a small salary and take the rest as dividends, and many insurers will accept this full picture when calculating benefits.
Though directors are technically employees of their company, most income protection policies in this context are set up personally. That means:
WITH OUR INCOME PROTECTION,
YOU CAN COVER UP TO 65 % OF THE FIRST £ 60,000 OF YOUR CLIENT’ S EARNINGS AND 50 % OF INCOME
ABOVE THAT, UP TO £ 250,000.
• The director owns the policy
• Premiums are usually paid from personal funds( or reimbursed by the company as remuneration)
• Benefits are received personally and are tax free
While some executive income protection plans exist( with the company paying the premium and the benefit treated as taxable income), most standard policies for directors are structured as personal policies for simplicity and taxefficiency.
Tax treatment Generally, premiums for personally-owned income protection policies are not tax-deductible, regardless of whether you’ re self-employed or a director.
Any claim payments received under a personally-owned policy are tax free. If the company owns the policy and pays the premiums, the tax treatment becomes more complex, potentially a taxable benefit.
Why Royal London? With our Income Protection, you can cover up to 65 % of the first £ 60,000 of your client’ s earnings and 50 % of income above that, up to £ 250,000. Additionally, fracture cover and hospitalisation support payments are included at no extra cost.
For self-employed clients, they can include ongoing fixed business expenses such as rent or finance agreements.
Limited company directors can include both salary and dividends in their insured income.
Clients only need 12 months of financial history to verify their earnings which is ideal for newer businesses.
And for contracting clients, they can benefit from a threemonth grace period, allowing them to maintain their own occupation status if they’ re not working or are in between jobs at point of claim.
Income protection may not be the most glamorous financial product— but for self-employed people, it’ s often the most essential. It protects their lifestyle, their home, their business and their independence.
With no sick pay or employer safety net, the question for selfemployed clients isn’ t‘ can I afford income protection?’, it’ s‘ can I afford to be without it?’.
To find out more about the products and services available to you, then visit: www. RoyalLondon. com
Top tips for the perfect income protection policy
1 A 13- or 26-week deferred period balances affordability and speed of payout for most. Clients with emergency savings may opt for 26 weeks to reduce premiums.
2 Aim to cover at least your client’ s monthly household expenses and fixed business overheads. Remember, over-insuring may result in claim reductions, so keep benefits realistic.
3 For younger clients, covering to retirement( for example, age 65 or 68) offers peace of mind. For older or budget-conscious clients, a 2- or 5-year term may be suitable.
4 Inflation-linked increases protect longterm value. Fixed-rate indexation( for example, 3 % annually) or RPI-linked options are both commonly available.
| PROTECTION ADVISER | AUTUMN 2025 | 17