What happens in case of illness? Protecting the business’s income and ensuring the manager’s salary

When a company director wishes to insure against loss of income due to illness and/or disability, there is the option to take out a guaranteed income insurance or a turnover insurance.

A turnover insurance ensures that the company’s income is safeguarded if the company director is unable to work due to illness or accident. A guaranteed income policy, on the other hand, insures the salary of the company director (managing director or board member of a company).

A turnover insurance is often taken out by smaller companies where the role of the company director is crucial. Loss of income due to the director’s incapacity for work can seriously jeopardize a business. With a turnover insurance, the insurance company pays the business an amount that compensates for the loss of income caused by the absence of the director. In this case, the company is both the policyholder and the beneficiary.

Thanks to a turnover insurance, the company can continue to pay part of its ongoing expenses such as rent or loan repayments. The premiums for such a policy are fully tax-deductible as professional expenses. The compensation paid out is in principle taxable.

It is also possible to take out a guaranteed income insurance or to combine it with a turnover insurance. In this way, both the entrepreneur and the company director are optimally protected.

A guaranteed income policy insures the salary of the company director. This type of insurance can be taken out either in the name of the director or in the name of the company (as policyholder). The beneficiary is always the company director.

The tax advantage will be greater if the company pays and deducts the premiums for the guaranteed income insurance. If the premium is paid privately, it partially replaces the lump-sum expense deduction to which a company director is entitled in personal income tax.

A company can therefore take out the guaranteed income policy, pay the premiums, and also deduct them for tax purposes. The fact that the company pays the premiums does not result in a taxable benefit in kind for the company director. The Income Tax Code explicitly provides for an exemption in this respect (art. 38, §1, para. 1, 19°, 52, 3°, b), 59 and 195, §1 ITC 92).

Within the company, the cost of the premium is added to other professional expenses, so that the full amount of the premium always yields a tax benefit. Moreover, the company director still retains the lump-sum expense deduction on their remuneration in personal income tax.