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It’s one of those products that you hope you will never have to use, but did you know that income protection insurance is a taxable benefit?

You can also offset the cost of an executive income protection policy against your Corporation Tax bill, although the payments themselves (should you make a claim) will be taxable. As a limited company owner, you will typically only get paid when you work – particularly if you provide professional services to clients.

If you’re unable to work because of illness, it can put a strain on finances and while you may be able to bridge the gap with savings, this isn’t a long-term solution.

This is where an income protection policy can give you the support – and security – you need, when you need it most.

This type of policy will provide you with a pre-agreed monthly income that can help to cover expenses until you are well enough to return to work and start earning again. When it comes to insurance, there are always clauses and caveats to what is and isn’t covered and the old adage of shopping around for the best deal certainly applies.

Income protection in a nutshell

IP cover can be arranged to pay you a fixed monthly sum if you’re off sick or suffer a long-term illness. The policy can be put in place to cover you up to the point you retire, although you may decide you only need coverage until you have paid off a mortgage, for example, or until your children are no longer dependent on you.

The amount of benefit you receive will depend on your average contract income and the length of time before the policy is activated, known as the ‘deferred period’. This can be from day one, a month, six months or as long as a year from the time you are off sick.

Usually, the longer the deferred period you select, the less you’ll pay for the policy but you’ll need to be sure you have the funds to cover you for the intervening weeks or months.

If you don’t have any funds to fall back on, a shorter deferred period is likely to be your best option. Paying for IP via your limited company means you’ll be able to claim for it as an allowable business expense, making it tax-deductible although you will still have to pay tax on any payments received from the policy.