An Executive income protection policy provides key members of staff an income replacement in the event of them being unable to work

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What is executive income protection insurance?

Executive income protection insurance is an income replacement policy. The policy provides an employee with a regular monthly income in the event of them being unable to work due to sickness or injury. The policy is set up, paid for and owned by the business. It is especially beneficial for small businesses and their owners. Where not working is a significant threat to their income.

Executive income protection protects against the risk of loss of income.

What does executive income protection cover?

Executive income protection covers the income of a key member/members of staff who are too ill to work due to sickness or accident. 

  • It replaces their income when they are ill providing the employee with a valuable benefit.
  • Executive income protection covers an employee who is too sick to do their ‘own’ individual job. 
  • Insurers will cover up to 80% of income.
  • Some policies can cover a spouse’s dividends too – but only if they do not hold a position that is revenue generating Eg an admin role.

Are there different types of executive income protection?

Whilst there are no different types of executive income protection. There are many policies on the market from different insurance providers. All have different terms and conditions.

It is advised that you receive expert advice on the most suitable policy and provider for your circumstances.

How does executive income protection insurance work?

Executive income protection insurance works by the business arranging an income replacement policy for a key member of staff.  

The policy is arranged on a ‘life of another’ basis. This means that it is owned and paid for by the company and can therefore be paid as a business expense. The company can insure up to 80% of the employee’s income whether that be salary, dividends, or bonuses. 

When a claim is made, the benefit is paid directly to the business. The business would then pay the benefit to the employee through its normal payroll. 

The employee would receive a salary, which would be taxed under PAYE, along with National Insurance Contributions. Upon application, you must choose a deferred period. This is the length of time between the employee becoming incapacitated and the benefit amount kicking in.

There are many variables in policy types and requirements. So, it is important to seek advice from an expert adviser when setting up an executive income protection policy.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Here are some frequently asked questions that our clients ask:

  • Executive income protection is for key members of staff like Directors or senior staff. Or, any selected employees that you would like to provide an extended sick pay arrangement to.

  • To assess whether you need executive income protection, consider the following questions:

    • Do you own a limited company (or are a key member of staff), who has dependants relying on your income?
    • Could you or your key employees survive on Government Statutory sick pay (SSP) of £116.75 per week (2024), for only a maximum of 28 weeks?
    • Did you know that after 28 weeks any further payments will be means-tested and so there is no guarantee of continued Government support?
    • How long could you live off your savings?
    • Is there a family member who can cover your outgoings indefinitely?
    • Who would pay for your mortgage or rent if you were too sick to work for an extended period of time?

    If you are in any doubt about the answer to these questions, our qualified advisers are on hand to discuss and advise – at no-obligation.

  • An executive income protection insurance policy is owned and paid for by the company. Not the employee.

  • In order to get the right level of executive income protection for your circumstances you should seek professional advice. Each person’s situation is personal to them. A guideline would be: 

    Look into insuring 80% of your gross salary and dividends. Including the value of any P11D benefits and pension contributions.

    Your adviser will work with you from here. Safely reducing the amount insured if necessary,  until your company reaches an affordable premium. Also, bear in mind that premiums paid for by the business are tax deductible, so there will be an offset.

What factors affect the cost of an executive income protection policy?

The factors that affect the cost of an executive income protection policy are like those of a personal income protection policy. With minor differences in what can be counted in the sum insured: 

  • Age?
  • Health – active? Young fit and healthy? Or, older with a few niggles? 
  • Any pre-existing medical conditions?
  • Lifestyle – smoker/ non-smoker? Alcohol units?
  • Sum insured – see below for guidance on what can be included
  • Chosen deferred period – the length of waiting time between being ill and the claim being paid
  • Term – length of policy – five years or until retirement age?
  • Full or short-term policy – do you want to choose a policy that will pay out until retirement? Or, one that pays out for only  2 or 5 years?
  • Occupation class – own occupation? Ie a payout if you can not do your own specific job.

Executive income protection policies can payout a replacement of up to 80% of an employee’s gross taxable earnings. This can include dividends, P11D benefits and any pay related to the employee’s performance within the business.

What are the benefits of executive income protection insurance?

The benefits of executive income protection insurance are many:

  • Executive Income Protection can be an alternative to personal income protection. Especially for small businesses and one-person limited companies due to its tax efficiency. 
  • Monthly premiums are an allowable expense against company profits.
  • Insurers will cover up to 80% of the employee’s income, which is higher than personal policies that typically cover up to 65%.
  • The value of P11D benefits can be included in the benefit calculations.
  • Included in the benefit amount are employers’ NI contributions and employer pension contributions
  • A generous cover limit of £300,000 compared to personal income protection which is lower at £200,000.
  • Some policies cover a spouse’s dividends, as long as their role is not profit-generating.
  • Executive income protection does not count as a P11D benefit, so the employee will not have a tax liability from it.
  • An Executive income protection plan can be index linked so that its value does not diminish over time with inflation. 
  • Flexible payout terms can range from 2, 3 or 5 years or until retirement. 

Min premiums start at just £5 per month. The table below will give you a comparison of what monthly premiums will be payable for full-term executive income protection to age 65. When compared to the monthly premiums payable for a short-term executive income protection policy. That only pays out over two years.

Quotes provided July 2024.

Please note that any premiums mentioned are indicative only and based on this specific case study/example, which is shown for information purposes only. Monthly premiums shown are an average of the 2 cheapest insurers. Your own circumstances will determine whether the amount payable is more or less than the figure quoted.

Benefit term Sum assured in £sPremium in £s per month
Full£2,000£57.24
2 year payout£2,000£19.65

Who is the best provider for executive income protection?

There are many excellent providers of executive income protection in the market. The best provider for one company does not necessarily mean they will be the best for another. Each provider will have different terms and conditions, additional benefits and thresholds. Your Future Proof adviser will be able to assess what is most important for your company. Then match it to the best provider’s policy for you.

Here are some frequently asked questions that our client’s ask us about executive income protection:

  • Executive income protection is worth it for three key reasons:

    1. Providing a key employee with an extended sick pay arrangement.
    2. There are tax advantages for the company as premiums are tax deductible.
    3. Within the amount insured, Executive income protection can include NI contributions and pension contributions. It allows an even greater amount to be insured than a personal income protection plan.

    The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances

  • The length of an executive income protection policy, can be from five years up until 70 years of age.

  • It could be a good idea to get both executive income protection and key person insurance if there is an insurable interest. I.e There is a need to provide a long term sick pay arrangement for staff.

    In addition, there may also be a need to protect your company from the loss of profits owing to the death of a key employee. Our expert advisers will assess if there is a need and advise you on the most cost-efficient policies available in the marketplace.

  • If you are the owner of a limited company, a Contractor or a Director. Give one of our expert advisers a call who will talk you through the process and the necessary questions in plain simple language.

    In addition to personal questions relating to age and health, your adviser will ask you financial questions such as:

    1. What is your gross annual remuneration?
    2. How is it made up? Gross income salary/ shares/ P11D value/ pension contributions/ National insurance contributions?
    3. Is the company a Limited company?

    We can guide you through the entire process and make it as simple as possible for you.

  • Executive income protection insurance is not the same as key person cover. It is important to understand what each insurance covers. To illustrate the difference between the two see below.

    Key person cover – protects your business from financial loss in the event of a key member of staff dying or becoming seriously ill. The policy is owned by and paid for by the business. If there was a claim, the sum would be paid directly to your company. The beneficiary is the company and the payout can be used to replace any lost profits or recruit a replacement.

    Executive income protection insurance is an income replacement policy arranged by a business. The benefit is for key members of staff and provides them with a regular monthly sick pay benefit. It forms a replacement income in the event of them being unable to work due to sickness or injury. The policy is arranged on a ‘life of another’ basis meaning that it is owned and paid for by the company. Therefore, can be paid as a business expense.

How do I get a quote for executive income protection?

For business protection, it is advisable that you receive professional advice. Your Future Proof adviser is on hand to provide quotes and specific protection advice for your company.

Call Freephone 0800 644 4468 – Monday to Thursday from 09.00 to 19.00 and on Friday between 09.00 and 17.00.

Please feel free to read our Independent client reviews, or read about the team at Future Proof

Links from this website exist for information only and we accept no responsibility or liability for the information contained on any such sites. The existence of a link to another website does not imply or express endorsement of its provider, products or services by us or St. James’s Place. Please note that clicking a link will open the external website in a new window or tab.

Other types of cover for you

Personal income protection
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Other types of cover for you

Key person cover
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Which type of protection should I get – executive income or personal?

Our qualified advisers will be able to advise you on which type of protection you should get. Whether that be executive income or personal income protection. There are advantages to both, which can be explored depending on your own circumstances. 

What’s the difference between executive income protection and personal income protection?

The difference between executive income protection and personal income protection is illustrated in the table below:

Personal Income ProtectionExecutive Income Protection
Policy ownerThe individualThe company
Age limits18-6518-70
Available deferred periods in weeks4,8,13,26,524,8,13,26,52
Available full income protectionyesyes
Available short term protectionyesyes
Cover allowed/ sum insuredUp to 65% of gross incomeUp to 80% Salary / Dividends / Company National Insurance / Company Pension Contributions / P11D benefits
Employer pension contributions covered by sum insured? Non applicable Yes
Employer National Insurance contributions covered by sum insured?Non applicableYes
Value of P11D benefits covered by sum insured?NoYes
Benefit paid to?The individualThe company
Premiums tax deductible?NoYes
Payout tax free?Tax-freeTaxed under PAYE and NIC rules
Policy counted as a P11D benefit?NoNo

Only advisers are able to advise and recommend executive income protection insurance. Our expert and qualified advisers only advise our clients on these types of policies after they have gained two years of experience within our company.

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances

Read more about Personal Income Protection

Executive income protection and claims and tax

Frequently asked questions about claims include:

  • You claim on an executive income protection policy in the same way as you would a personal policy. You can either request that Future Proof handle your claim, or call the insurer direct.

    The insurer will request details from your GP or a Consultant. They will also require proof of your last 12 months of income. You can start the claim at the beginning of your chosen deferred period.

    The deferred period refers to the length of time from making a claim until the point at which a payout is made.

    In the meantime, whilst waiting for the claim to be assessed and paid, you may also benefit from the additional benefits the insurer offers. To help you get back to work sooner, potentially even avoiding the need to claim.

  • You will have to wait for your chosen deferred period to be completed before your executive income policy pays out.

    You will have been given the option of choosing a deferred period of four or eight, 13, 26, 52 weeks (depending on the insurance provider)

  • Executive income protection will pay out a maximum of 80% of your gross taxable earnings.

    Within the 80% can be included:
    > Gross income
    > Salary
    > Shares
    > P11D value
    > National insurance contributions ( up to £3,542 per month)
    > Pension contributions (up to 30% of total monthly benefit chosen)

    Your payout will be subject to the usual income tax and NIC reductions at source. As it will be paid via your usual payroll system.

    The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances

  • How long an executive income protection policy will payout, will depend on the type of policy. If you have a full income protection policy, the pay out will continue until, you retire, get better or die. The payout must happen within the term of the policy – usually up to age 65 years.

    With a short term executive income protection policy, the payout will last two or five years according to which payout term was chosen at outset.

Is executive income protection tax deductible?

  • Yes, executive income protection premiums are tax deductible. 

    The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

  • Whilst the payout from the insurer to the Limited Company is not taxed, the usual deductions of Income Tax at the employee’s marginal rate and relevant NICs will be applicable in order for the income to be passed to the employee. 

  • No, executive income protection is not a benefit in kind.

    The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

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