Overview
What is Executive Income Protection insurance?
Executive Income Protection Insurance is a type of business protection that pays out a regular monthly benefit should the insured employee or director become too ill or injured to work.
It is popular with contractors and directors working in their own limited companies. It can help to lessen the impact of long-term illness or injury, covering up to 80% of income, whether that be wages or dividends.
Do I need Executive Income Protection?
For many business owners, especially those of small companies, becoming unwell or suffering an accident which prevents them from working is a significant threat which will usually mean a loss of some or all of their income.
Executive Income Protection could protect you from the risk of loss of income. It could pay up to 80% of your income [1] in the event of a valid claim. This is usually better than a personal policy which typically pays up to 60%.
Further details
How does it work?
The policy is arranged and paid for by the employer (the policy owner) on the life of the employee (person insured).
If the employee becomes ill or injured and unable to work, the monthly benefit under a claim is paid to the employer. They then pass it on to the employee to fund ongoing sick pay.
The employer can also cover other costs (for example their employer’s National Insurance and pension scheme contributions).
Tax treatment of premiums and proceeds
The policy premiums of an Executive Income Protection policy will normally be tax deductible for the business. It is not usually classed as a benefit-in-kind for the employee who is insured. Payments from the business to the employee as the result of a valid claim will result in appropriate reductions of tax and national insurance as a result of the PAYE system.
What is the deferred period?
The length of the deferred period is selected when you commence an income protection policy and this would typically be between 4 weeks and 12 months, although it can be shorter.
The longer the chosen deferred period the lower the monthly premiums will be on an income protection policy.
