What Is Executive Income Protection?
Executive income protection (EIP) is an income protection policy where the premiums are paid by your limited company rather than you personally. The company claims the premiums as a tax-deductible business expense, potentially saving significant amounts in tax compared to a personal policy.
How It Differs from Personal Income Protection
| Feature | Personal IP | Executive IP |
|---|---|---|
| Who pays premiums? | You (post-tax income) | Your company |
| Tax relief on premiums? | No | Yes (corporation tax) |
| Benefit in kind? | N/A | Yes (P11D) |
| Are payouts taxable? | No (tax-free) | Yes (as salary) |
| Best for | Employed individuals | Company directors, high earners |
Tax Benefits
The potential tax savings depend on your personal tax situation:
- Company pays premiums: saves 19–25% corporation tax on the premium cost
- You pay personal tax on the P11D value (the premium amount)
- Net saving: typically beneficial for higher-rate and additional-rate taxpayers
Example: A £100/month premium paid personally costs you £100 from post-tax income (which means you earned £167 pre-tax if you are a 40% taxpayer). The same premium paid by your company costs the company £100, with corporation tax relief of £19–25. You pay income tax on £100 as a benefit in kind. The net saving can be significant for higher earners.
Who Should Consider Executive IP?
- Company directors taking minimal salary and dividends
- Higher-rate (40%) and additional-rate (45%) taxpayers
- Directors whose company has sufficient profits to cover the premiums
- Senior employees where the employer wants to provide enhanced benefits
Important Considerations
- The maximum benefit is typically limited to the director’s earnings from the company (salary + dividends)
- Speak to your accountant before setting up an executive IP policy to confirm it is tax-efficient in your specific situation
- If your company has limited profits, a personal policy may be simpler and equally effective
Frequently Asked Questions
IP where your company pays premiums as a tax-deductible expense. Tax-efficient for higher-rate directors.
Premiums: yes, corporation tax deductible. But it is a P11D benefit and payouts are taxed as income.