How does health insurance work?

Health insurance gives you access to private healthcare so you can recover and get back to running your business quickly. Whether you're a one-person limited company or the director of a larger firm, time away from work can severely impact your income and business operations. You may want to avoid time on an NHS waiting list, and being treated privately lets you do that.

Private health insurance includes core coverage, such as inpatient treatment and cancer care, as standard. However, you can also add optional extras at an extra cost. These can offer valuable benefits to you and your business.

For example, outpatient treatment is typically only available as an optional extra, but it lets you get a quick diagnosis and treatment. Without it, you'd need to wait for an initial appointment and tests via the NHS, which can significantly increase your waiting time.

When you've chosen your policy and started paying the premiums, you can contact your insurer to make a claim when you need treatment.

Do you want a group health insurance policy or an individual policy?

Group health insurance policies are available to businesses with two or more employees. So this option isn't available if you're a sole trader with a limited company. However, you can still choose and pay for an individual policy through your business.

There is a difference in the tax position between your company paying your premium and you paying personally and claiming it back. We'll talk more about that shortly.

Alternatively, a group policy is ideal if you have employees and want to provide them with private medical insurance as part of their employee benefits package.

Group policies have the advantage of reducing the cost per head as it allows your insurers to spread the risk that you'll make a claim.

A group policy can also provide additional services such as an employee assistance programme, help with creating a well-being strategy and even occupational health support, depending on the size of your company.

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What does private health insurance cover?

Private health insurance policies offer core coverage which you can enhance by choosing from various other cover options. All policies cover inpatient care enabling you to receive private treatment in a hospital. It will also cover the cost of surgery, cancer treatment and some types of mental health treatment as standard.

You can also add coverage for outpatient treatment if you choose. This gives you access to private consultant appointments, diagnostic tests, outpatient therapies, and physiotherapy.

You can choose from many treatment options, so it's worth getting professional advice to guide you and help you decide on the best ways to get value for money.

What isn't covered?

Each insurance company has a list of exclusions, which typically include cosmetic surgery, treatment for addiction and normal pregnancy and birth. Exclusions vary between different insurers, so it's essential you check.

Pre-existing conditions are also excluded; you won't be covered for any illness that needed advice or treatment during the five years before the start of the policy.

Health insurance only covers acute conditions, so your treatment won't be covered if you have a chronic illness such as diabetes, asthma or kidney disease.

What are the tax implications when the company pays for my health insurance?

Private health insurance premiums are an allowable business expense, so if your limited company pays for your medical insurance, you can claim corporation tax relief on the premium amount.

However, it would be best to consider whether this is the most tax-efficient way of paying for your health insurance or whether it's worth paying personally. If you pay for your policy, you'll already have paid tax on the money you use, so you won't need to pay any additional tax.

If your company is paying, your private medical insurance will be treated as a benefit in kind, which creates reporting requirements with HMRC. It will also impact the amount of income tax and national insurance contributions your company and employees will pay.

You can find out more about how company medical insurance is taxed here. It's essential you seek expert advice from your accountant. However, here are a few things to consider.

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Do you receive a salary or dividends?

If you take a salary, it will be taxed at a different rate from dividend income. This can make an enormous difference to your tax position if you pay for your medical insurance personally rather than having it as part of your remuneration package.

The rates you pay vary depending on the amount of income you take and whether you're only paid a salary, dividend income, or a combination of the two.

It's also important to consider the financial impact on your business and your personal taxable income. Your dividend income will be paid net of corporation tax, so you'll need to assess how much your company will need to earn to cover the cost of your dividend income and medical insurance.

Are you a basic rate or higher rate taxpayer?

HMRC treats private medical insurance as a benefit in kind, so you'll need to pay income tax on the value of the benefit. This is simple to calculate as it's the same as the cost of the premium.

The amount of tax you pay depends on whether you're a basic rate or higher rate taxpayer and can also impact your personal allowances depending on your overall income level. It's wise to take professional advice to consider whether this is the most tax-efficient approach.

Tax implications for employees

Suppose you opt for a group policy and cover employees. In that case, private medical insurance is treated as a taxable benefit in kind for employees in the same way as it is for directors. Your limited company will need to report it on P11D and pay employers' class 1a National insurance contributions on the value of the benefit. Your employees will also pay income tax.

If you or an employee pays for their health insurance and claims it back, the amount claimed must be treated as part of your earnings for tax purposes. Therefore, you'll need to include it in your personal tax return or pay PAYE tax and National Insurance for an employee.

How much will my health insurance cost?

The cost of your health insurance depends on many factors, including:

  • Your age (or the average age of your employees).
  • Your postcode.
  • Your medical history.
  • Your job; for group policies, the type of work your business does will also be a factor.
  • Your lifestyle; this can include hobbies and whether you're a smoker.
  • Whether you want to add family members to the policy.
  • The level of coverage you want; a fully comprehensive policy will cost more than a basic one.

Private health insurance providers assess premiums in different ways. So it's a good idea to shop around to get the best deal for your money.

Get in touch

A specialist medical insurance broker can help you to make an informed choice about the right cover, whether you're paying personally or your limited company pays for your health insurance. We offer a personal service that's tailored to you. Ge

Fabio Peixoto
Senior Broker & SME Expert

Fabio Peixoto

Fabio is a senior health and life insurance broker with stacks of knowledge to share. He has over five years of experience and has held senior positions in other brokerages.

Frequently asked questions