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Executive Income Protection Insurance

Range of Benefits

  • Covers up to 80% of gross income
  • Pays out when physically unable to work
  • Premiums tax deductible for the business
  • No benefit in kind for the policy owner
  • Can cover most types of income & benefits
  • Paid into the business for any purpose

Executive Income Protection (I.P.) is different to personal I.P. as the policy is owned by the business, not the individual insured. More complex than personal I.P, it can only be arranged through an adviser. It is a particularly attractive benefit for small or one person Ltd Companies, offering the tax efficiency of group schemes but for individual policies.

Due to the tax efficiency and high percentage of income that can be covered, it is a great way for one person business owners to protect their income against being unable to work. Also, an ideal way to protect small businesses against serious health problems impacting key employees. Get in touch to find out more.

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Additional Information

Like a personal Income Protection plan, the cover pays out in the event that the life assured is unable to work due to accident or illness, however, the income is paid into the business rather than being paid directly to the insured person. This payment arrangement provides additional flexibility for the business. The benefit can be paid to the employee or retained in the business as financial support against the loss of a key staff member, or even a bit of both. This additional payment flexibility can be particularly attractive to small businesses and one person limited companies.

Executive Income Protection plans can cover up to 80% of an individual’s gross income, which includes PAYE salary, dividends and P11D benefits. In addition, employer national insurance and pension contributions can be covered under the policy, which can be particularly prudent where the pay-out period is to retirement age. Payment to the life assured from the policy will be taxed as PAYE, so this should be factored in when calculating the benefit amount required.

Options to consider when taking out a policy are shown below.

  • The amount of benefit – The maximum annual sum assured is currently £300,000 and it must also be below 80% of the employee’s total allowable income.
  • Level or Increasing benefit – increasing benefit stays in line with inflation or increases annually at a set rate e.g. 5%.
  • Illness period before pay-out - Deferred periods are available for 4, 13, 26 and 52 weeks and premiums reduce as deferred periods increase.
  • Pay-out term – Policies can pay-out for 2, 3, 5 years or to retirement age.
  • Term – the minimum term is usually 5 years whilst most policies are written to a maximum age of 70.
  • Guaranteed or reviewable premiums.
  • Whether to include National Insurance and company pension payment coverage.

Comparison of Executive and Personal Income Protection

  Executive Income Protection Personal Income Protection
Policy owner Employing company Life assured
Cover allowed Max 80% of allowable income plus company NI / pension contributions Max 70% of allowable income
Cover limit £300,000 £200,000
Taxation of pay-out Taxable as business revenue or PAYE if paid to employee No tax to pay
Premium tax position Tax deductible for business and no benefit in kind of employee Tax deductible for business but benefit in kind for the employer
Benefit paid to Paid into the business Paid directly to the employee
What can be covered Salary/Dividends/Company National Insurance/ Company Pension Contributions/ Company Life Insurance Contributions Salary/ Dividends/ P11D benefits
Who can arrange Adviser only Adviser or individual with some insurers
Pay-out duration 2, 3, 5 years or to retirement 1, 2, 5 years to retirement
Deferred periods 4, 13, 26 or 52 weeks 0, 1, 2, 4, 8, 12, 26 or 52 weeks

 

The additional complexity of Executive Income Protection is recognised by the insurers in that they only allow qualified advisers to arrange these policies, so if you are considering taking out this type of cover we can put you in touch with an adviser to talk you through your options and get you the best available premiums.

If you are also considering group income protection or even employee private medical and death benefits then the advisers we can recommend are also able to offer advice in these areas.

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