Executive Income Protection

Providing Your Business with Consistent Income When an Employee or Director is Unwell

Executive Income Protection offers vital support to small businesses by safeguarding them from the financial strain that arises when an employee or director falls ill or is injured and unable to work.

This plan is structured to provide a monthly benefit to the business in the event of a valid claim. These funds can be used to cover the ongoing sick pay of the employee or director, ensuring they can meet their financial obligations without having to rely solely on their savings or state benefits.

The coverage can extend to up to 80% of the employee’s salary, including dividends and P11D benefits. Additional coverage options are available at an extra cost to include employer pension contributions and National Insurance (NI) contributions. Company directors can take advantage of this valuable benefit without facing P11D benefit-in-kind tax.

What Would You Do If Your Income Suddenly Stopped?

Executive Income Protection is specifically designed for small and medium-sized businesses to help cover the cost of providing sick pay to key employees, including controlling directors.

The policy is established and funded by the employer (who owns the policy) for the benefit of the employee (the insured person). Should the insured employee become ill or injured and unable to work, the monthly benefit from a claim is paid to the employer (policy owner), who then passes it on to the employee through PAYE to support their ongoing sick pay. The employer can also use the policy to cover additional expenses, such as employer’s National Insurance and pension contributions.

Let's Consider an Example

James is the sole director and owner of his business. He enjoys a good income, and the business contributes £1,000 per month to his pension. James is 40 years old and hopes to retire by age 60.

Unfortunately, James becomes seriously ill and is unable to work. Although the business is financially stable with solid capital reserves, James is crucial to its long-term profitability. The business, along with James’s livelihood, may not survive in its current form unless he can return to work within a reasonable period.

If James has Executive Income Protection, he can rest assured that his income will be maintained in both the short and long term.

Most importantly, if James is unable to return to work at all, he has the peace of mind that his pension contributions, as well as his income, will be maintained until he reaches his planned retirement age. This means that, in addition to receiving up to 20 years of income, James’s policy could provide over £200,000 in pension contributions over the policy’s duration.

Key Features of Executive Income Protection

• The monthly benefit is paid to the employer and then distributed to the employee through PAYE to cover sick pay, thereby safeguarding the business's finances.

• Tailored specifically for small and medium-sized enterprises (SMEs).

• Typically qualifies as a tax-deductible expense for the employer.

• Provides coverage for up to 80% of the employee’s earnings, including the employer’s National Insurance and pension contributions (up to the applicable maximum limit).

• Offers greater tax efficiency for the employee compared to personal Income Protection insurance.