All Income Protection insurance policies exist to give you a degree of cover if you can’t work, due to either serious illness or injury. But what if you are the Director of a company? What would happen to yours and the company’s earnings?
Standard Accident & Sickness insurance can cover you for a short to medium length of time while you are off work, due to an accidental injury, however this type of policy is a personal plan and therefore usually paid for by the individual which the policy covers. Income Protection Insurance for Directors can be paid for by the company earnings rather than paying for it personally. This could offer you better tax efficiency as the policy wouldn’t be paid out of post-tax income.
In many ways, a policy specifically for Directors’ shares many similarities to a regular income protection policy. The key differences between the two are how much cover is required and who would be paying for the policy as commonly business income protection is paid for before taxation occurs. A personal insurance policy usually allows up to 65% of pre-taxation salary to be covered and would have to be paid for by the policyholder.
For Directors, most insurers will specify the income covered by the policy as the policyholder’s gross salary as well as dividends. They can then have up to 80% of this amount insured. Commonly, Director specific policies will use the definition of ‘Own Occupation’ to describe the incapacity so that you are able to claim the benefits for as long as your health problem will prevent you from working in your own occupation. Cover can be available up until retirement ages and until this point you can claim as many times as necessary. However, some policies have a more limited length of time and this can be affected by choices when you take out the policy.
There are 3 main types of Premiums you can take out which will affect the initial price as well as how much the price will change over time. These types are:
- Level Guaranteed These policies will not change in price over the policies lifetime unless you decide to change the level of cover your policy offers.
- Age-banded These will be adjusted as you get older to compensate for the increased risk in a claim as you age and your health declines. The rises can be at a fixed rate or by a changing rate over the policy lifetime.
- Reviewable These can be changed unpredictably. The premiums are regularly reviewed by the insurer to look at your current circumstances and the providers circumstances and the price can be changed accordingly. Most advisers will not recommend these types of premiums as the price can be affected by a large number of areas.
The steps for claiming on a policy of this type remain the same as a standard income protection insurance policy which would be:
- Step 1: You have an injury or illness that would prevent you from being able to work. You seek diagnosis from a medical professional and take a temporary leave of absence from work.
- Step 2: As soon as you start your temporary leave, you get in touch with the provider of your Income Protection Insurance to discuss making a claim. They will require a filled-out claims form and some form of evidence of your condition which is often a letter/note from your GP.
- Step 3: If the insurers reviews and approves your claims, the monthly benefit payments will start at the end of your deferred period. (This is something you can usually chose when taking out the policy.)
- Step 4: From there you will be able to claim these benefits until you either recover: reach the limit of your claims period or until your retirement age.
- Step 5: The policy will only end once either you retire, or if the policy reaches the end of its life. Up until either of those ages, you can claim as many times as you need to.
If you are interested in possibly taking out Directors Income Protection insurance or another type of income protection insurance, here at Income Protection Expert we work with unbiased and independent advisers to help make sure you get the best quotes and policies to suit your requirements.