What is executive income protection?
Executive income protection is an income protection policy that your business takes out and pays for on behalf of a director or employee. If the insured person can't work because of illness or injury, the policy pays a regular monthly benefit to the business once an agreed waiting period has passed. The business then pays that money to the person through payroll, so they keep receiving an income while they recover.
Despite the name, you don't need "executive" in your job title - it can be arranged for directors and employees at any level. Key aspects of this protection include:
- The business owns the policy, pays the premiums and receives the benefit;
- It can replace a large share of the person's earnings - with many insurers, up to around 80% of salary and, in some cases, dividends;
- Cover can also include the employer's pension contributions and National Insurance, so the person's pension can keep building while they're off work;
- Claims are based on whether the person is unable to work, rather than on a fixed list of illnesses.
This is where Cleerly can help. Call us on 02394 212912 or request a callback and we'll help you find the right cover for you and your business.
Understanding executive income protection
Deferred period
This is how long the person needs to be off work before the policy starts paying - typically anywhere from 4 weeks to 52 weeks. A longer deferred period usually means a lower premium, so it often makes sense to match it to how long the business could keep paying the person itself.
Benefit period
You can choose for the policy to pay for a limited time, such as one, two or five years per claim, or right up to the end of the policy, which is usually set around the expected retirement age. A longer benefit period gives more protection but costs more.
How much cover can I get?
The amount is based on the person's earnings from the business, plus the employer's pension contributions and National Insurance. Insurers set their own percentage limits and monthly maximums. If you earn from more than one company, your total cover across all your policies will be limited by your overall earnings.
What counts as being "unable to work"?
Every policy has a definition that sets out when a claim can be paid. The strongest is usually "own occupation", which pays if you can't do your own job. Others are based on your ability to do a similar job or a set of everyday tasks. We'll explain the differences in plain English and help you choose cover that suits your role.
Expert Commentary
"For most directors, their income is their most valuable asset, yet it's often the one thing that isn't protected. Arranging cover through the business can make it more cost-effective, but the details matter just as much as the price. The definition of incapacity and the waiting period can make all the difference when you need to claim."
Feeling inspired?
Want to keep an income coming in if you can't work? We'll help you find the right cover.
Whether you're ready to get the ball rolling or you'd just like some friendly, no-obligation advice, give us a call on 02394 212912 or complete the form below and one of our protection specialists will be in touch.
Executive income protection and tax
In general:
- Premiums are normally treated as an allowable business expense for corporation tax, provided they meet HMRC's "wholly and exclusively" test;
- The policy isn't normally treated as a benefit in kind for the individual;
- Any benefit paid to the business is treated as business income, and the business pays it to the person through payroll, with income tax and National Insurance deducted in the usual way.
Tax treatment depends on your circumstances and can change, so please check with your accountant - we're happy to work alongside them.
Executive income protection FAQs
Because the policy is linked to your employment, it will normally end when you leave. Some insurers offer an option to carry on cover on a personal basis, and we'll explain what's available when we set up your plan.
No. Critical illness cover pays a one-off lump sum if you're diagnosed with a condition that meets the policy definition. Income protection pays a regular income for as long as you're unable to work, up to the end of the benefit period, whatever the cause - subject to the policy terms. Many people have both.
Usually, yes. Most policies allow you to claim as many times as you need during the policy term, subject to the terms.
Mental health conditions are typically covered if they stop you working and meet the policy definition. Terms vary between insurers, and anything you disclose when applying may affect the cover offered.
Group income protection is a single scheme covering a group of employees. Executive income protection is an individual policy, so it suits smaller businesses or cover just for directors and senior staff.
You'll need to answer health, lifestyle and occupation questions, and the insurer may ask for medical evidence. It's important to answer everything fully and honestly, as failing to disclose something could affect a claim.
Important information: Executive income protection is subject to the insurer's underwriting, policy definitions, terms, conditions and exclusions. No benefit is paid during the deferred period, and the benefit may be reduced by other income received while unable to work. Policies have no cash-in value at any time, and cover will end if premiums are not paid. Tax treatment depends on individual circumstances and may change in the future. Cleerly does not provide tax or legal advice - please speak to your accountant or a tax specialist.
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