What is executive income protection?

Executive income protection protects businesses and their employees against the financial impact of a staff member being unable to work due to illness or injury. When a successful claim is made, the policy will pay a monthly cash amount based on the employee’s salary to the business.

Stephen Hough
Managing Director
What is executive income protection?
Stephen Hough
Managing Director
Business Protection
Self Employed
October 16, 2023
Read time: 

Who is executive income protection for?

Executive income protection may be beneficial to any business with executive employees who rely on their salary or company profits to support themselves. 

It’s common in small businesses where directors are involved in the day-to-day operations and rely on their ability to work for their income, but larger companies also utilise the policy as a benefit for their employees.

What does executive income protection cover?

Executive income protection covers an employee and pays out if they’re unable to work due to illness or injury. The policy will pay out a portion of the employee’s salary up to a limit of 80%. For example, if a covered employee earns £200,000, you may be able to find cover for up to £160,000.

Any payouts will be paid directly to the employer on a monthly basis. The funds can be used to replace the financial losses that occur due to their inability to work. We’ve included some examples below, some of which may only be available at an extra cost:

  1. Replace or top up sick pay
  2. Cover loss of salary
  3. Replace dividend income
  4. National insurance contributions
  5. Pension contributions
  6. P11D benefits
You may also be able to cover the employee’s partner’s dividends if they won’t generate revenue due to an executive's inability to work.

Policy terms, add-ons, rules and exclusions

Executive income protection policies have many options that determine how much you pay, what you’re covered for, and more. Some examples include:

  1. Policy length - The policy will stay in effect until the end date or if you or the provider cancels it. If you opt for a longer policy length, the premiums will increase. Many businesses opt for a policy length that aligns with the insured employee’s retirement age.
  2. Deferment period - This is how long the insured employee must be out of work before the cover comes into place, such as one week or 12 months, depending on the option you choose.
  3. Payment terms - The policy will stop paying out in certain circumstances. This does not mean that the policy ends, but rather the payments stop. Examples of when this may happen include:

    a. When an employee recovers and is able to return to work
    b. The policy reaches its end date
    c. The employee retires
    d. The employee dies
    e. The employee leaves your company
  1. Minimum and maximum employee age - Some providers will not cover employees who are too young or old at the start of the policy. As an example, LV requires employees to be aged between 17 - 59.
  1. Cover amount - Cover is offered as a percentage of the employee's salary, up to a maximum limit. Typically, this is a range between 50% - 80% and may be capped at a maximum amount such as £300,000.
  1. Maximum pension contributions - If cover is chosen that includes pension contributions, this may be capped, for example, up to 30% of the employee's gross earnings and a maximum of £40,000 per year.
  1. Business type - Executive income protection can only be purchased by a business that is legally able to hold a policy, such as a limited liability company or limited liability partnership. The business must be registered and permanently based in the UK.
  1. Cause of injury or illness - Providers will not agree to any claims where the cause of injury or illness is as a result of:

    a. Self-inflicted injuries
    b. Alcohol or drug abuse
    c. Committing criminal acts
    d. Travelling to an area of conflict
    e. Travelling to an area of active terrorism
    f.Travelling to an area with an epidemic
    g. Travelling to an area that the Foreign Office advises against
  1. Premium type - You may have the choice between several types of premium options on your policy, such as:

    a. Reviewable - The policy price will change over time and is regularly reviewed against social and economic factors that may increase the risk for the provider.
    b. Age guided - As the insured employee ages, the price of the policy will also rise due to the increased risks.
    c. Guaranteed - The policy will never change in price for the duration of cover.
  1. Inflation tracking - Some providers may allow you to track your cover with inflation. This means that as inflation increases, so does the potential payout an employee would receive if a valid claim is made.

What are the benefits of executive income protection?

To understand what benefits may be on offer to businesses and their employees, it’s important to first look at why there’s a need for executive income protection. 

In 2022, around 2.5 million people in the UK were unable to work due to long-term sickness - ONS
To qualify for State Pension, you need at least 10 years of National Insurance contributions. To receive the full amount, 35 years are needed - Gov.uk
In 2022, a third of UK workers were reported to be living month-to-month without spare cash for emergencies - Wtw
In 2023, 2.5million people reported that they were economically inactive due to long-term sickness - ONS

With this in mind, executive income protection may offer many benefits that help to minimise the effects of financial strain, such as:

  1. Cover loss of earnings - Sickness pay may not cover the expenses of an employee if they’re unable to work. This policy ensures they receive an amount closer to their original salary to support them financially through a difficult period.
  1. Continue national insurance contributions - National insurance contributions are required if an employee hopes to receive a state pension. Continuing these contributions while being out of work may help to support them financially in the future.
  1. Protect pension investments - Pensions may be considered long term investments, and missing contributions for any extended period of time may have a negative impact on your employee’s financial position when they come to retire.
  1. Peace of mind - For some employees, knowing that they’ll receive support if they’re unable to work may bring them peace of mind.
  1. Attract and retain talent - Offering executive income protection as an employee benefit may help attract staff to your business and retain your most valuable talent.

Executive income protection FAQs

1. How much does executive income protection cost?

Every policy will vary depending on the options you choose and who’s being insured. Some examples of what may impact the price include:

  • Medical history
  • Lifestyle
  • Deferment period
  • Provider
  • Addons, such as NI and pension contributions
  • The level of cover

2. How is executive income protection taxed?

Executive income protection may be deductible as a business expense, and it isn’t treated as a P11D benefit, so your employees won’t pay tax for being covered by the policy.

If, however, a claim is made, the payout is treated as income. When an employee is paid through PAYE, the usual tax laws apply.

3. Can you make changes to the policy?

You may be able to make changes to your policy, but this is up to your provider. To help avoid needing to do this, we recommend that you compare a wide range of options in the first instance to understand which may be the best option for you.

4. What happens if a covered employee leaves the business?

If an insured individual leaves the business, they’ll no longer be covered under the policy terms.

Compare executive income protection insurance

If you’re ready to get started, we offer a free comparison service for executive income protection policies.

We work with a of UK providers, and we’ll work with you to find the policy that offers you the most beneficial cover at the lowest cost. You’re under no obligation to make a purchase, and we can also help you with any questions you may have. To get started, complete the form below, and we’ll be in touch.

Speak to an independent insurance advisor

Our advisors are available to answer any questions, compare or renew policies, and help advise you on insurance needs. To speak to someone, provide some contact information, and a member will be in touch.

0800 970 1618
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