Are the monthly pay-outs from income protection taxable?

Income protection is the one life insurance policy everyone needs in this day and age. This type of cover can act as a financial safety net if you could not work due to accident or injury.

This policy could help you pay the bills, pay for the essentials in life and give you one less thing to worry about whilst you’re off work with an illness or injury.

What is income protection?

Income protection is a type of life insurance policy that will pay out a selected percentage of your income each month if you were ill and unable to work as a result.

The policy can cover up to 50-70% of your monthly income and is one of the best life insurance policies you can get if you don’t have much in the way of savings.

Will your income protection monthly pay-out be taxed?

If you make a valid claim on your income protection policy, after your deferral period, you will begin receiving the monthly payments from your life insurance policy.

You’re probably wondering if these payments are tax-free and the answer is YES! As long as the premiums for the policy are being paid for from your personal account and aren’t a business expense then the payments you will receive will be free from tax.

Executive income protection policy pay-outs

Executive income protection differs from the standard type of income protection in that it financially protects a business as well as an individual person. The monthly pay-outs from this policy would be paid initially to the company and then paid to the employee through the normal PAYE method.

If an employee is covered by this policy, the plan will pay out a monthly benefit to the business when an employee is absent due to illness or injury. This type of policy would be hugely beneficial to small or medium sized businesses as they would take a bigger financial hit.

Group employee income protection

This type of income protection still works the same as the standard type of income protection however, it is designed to protect a businesses employees (normally at least 10 or more) and is aimed at business owners.

So a company would take out the policy to financially protect its employees. This policy works as a sort of workplace perk and forms part of your package with your employer.

What about other types of life insurance?

The lump sum pay-out from other types of life insurance such as critical illness cover and a standard level life insurance policy are not subject to income tax (the type of tax that comes off your wage every month).

This means that you’ll get the full amount of the lump sum payment from your policy to use as you wish. If you’re still without a life insurance policy, click the button below to get started with your free quote today!