Some people would say that income and taxation both go hand in hand. It would follow from that that you would have to pay taxation on the insurance payments you receive as an income substitution, but this is not actually the case. Most income protection insurance policies will provide with regular, tax free payments in place of your main source of income if it is lost through sickness, injury or accident. For confirmation of the HMRC position on this type of insurance go to their website.
These payments made by you income protection are free of taxation. You will not have to pay any income tax or national insurance as you would on earnings from your employer.
This works both ways, however, as the monthly premiums you pay will not be eligible for any form of tax relief, although employers can put a group income protection insurance policy down as a tax deductable as a business expense.
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