Executive income protection
Company-paid income protection on a director or key employee. The business receives the benefit and pays it on as sick pay, with cover that can include dividends and pension contributions.
Executive income protection is income protection arranged and paid for by a limited company on a director or employee. If illness or injury stops that person working, the insurer pays a monthly benefit to the company, which passes it on through payroll as sick pay. For directors who take most of their income as dividends, it has a particular advantage: many insurers will cover salary plus dividends, and some will also cover employer pension and National Insurance contributions, which personal policies typically cannot.
Who this is for
- You are a limited company director paid mainly in dividends, which personal income protection often covers poorly.
- Your company wants to fund sick pay for a key employee beyond the statutory minimum.
- You want the business, not your personal account, to carry the premium cost.
- You have compared personal income protection and want to see the company-paid equivalent before deciding.
How executive income protection works
The company is the policyholder and pays the premiums; the director or employee is the person insured. If they cannot work because of illness or injury, then after the chosen deferred period (the waiting time before payments start) the insurer pays a monthly benefit to the company. The company pays it on to the individual through PAYE as sick pay, taxed like normal salary. The structure mirrors how large employers fund long-term sick pay, scaled down to a company of one or a few.
Why dividend-paid directors should look at it
Personal income protection is usually underwritten against salary, and directors who take a small salary plus dividends can find the cover they qualify for personally is far below their real income. Executive policies typically allow cover based on salary plus dividends, often up to around 80% of total remuneration, and some insurers add cover for employer pension contributions and employer National Insurance on the benefit. Maximums and definitions vary by insurer, which is exactly where comparison across a number of insurers earns its keep.
Tax treatment
Premiums paid by the company are typically treated as an allowable business expense, and are not normally a benefit in kind for the employee, though treatment depends on circumstances and should be confirmed with your accountant. The trade-off sits at claim time: because the benefit is paid on as salary, it is taxed through PAYE, which is why executive policies usually insure a higher gross percentage than personal policies, where the benefit is tax-free. We model both routes side by side so the comparison is like for like.
Deferred periods and benefit length
Deferred periods commonly run from 4 to 52 weeks; the longer the wait, the lower the premium. For an owner-director the question is how long the company can carry both the lost output and ongoing sick pay. Benefit can run to a set limit (for example two or five years per claim) or to retirement age. Limited-payment terms cost materially less and suit some businesses; full-term cover is the safer default for the main earner.
Own occupation definitions still matter
As with personal income protection, the claim definition decides whether the policy pays. We recommend own-occupation definitions, where the policy pays if you cannot do your specific job, rather than cheaper definitions that only pay if you can do no job at all.
How Major Money Matters helps
Specific things we do for this product. No generic platitudes.
Cover the income you actually take
Salary, dividends and, where the insurer allows, employer pension and National Insurance contributions. We match the policy to your real remuneration pattern.
Model personal versus executive side by side
Tax-free personal benefit against higher gross company-paid benefit. We put both in front of you and your accountant in real numbers.
Own-occupation cover by default
We use insurers whose definitions hold up at claim, and set the deferred period to match what the business can realistically carry.
Pre-assess health before applying
Prior conditions, mental health history and BMI all affect insurer appetite. We approach the most likely insurer first rather than collect declines.
Frequently asked questions
How is executive income protection different from personal income protection?
Ownership and tax. The company owns and pays for an executive policy and the benefit is paid through payroll, taxed as salary. A personal policy is owned and paid by you, and the benefit is tax-free. Executive policies usually insure a higher gross percentage to allow for the tax at claim.
Can it cover dividends?
Yes, that is one of its main advantages. Most insurers offering executive income protection will base cover on salary plus dividends, which suits directors who keep salary low. Insurer maximums and definitions of insurable dividends vary, so we compare carefully.
Are the premiums a benefit in kind?
Normally no, and premiums are typically allowable against corporation tax, but the treatment depends on the company's circumstances. Confirm the position with your accountant; we supply the policy documentation they need.
Is the benefit taxed when it is paid out?
Yes. The insurer pays the company, the company pays you through PAYE, and income tax and National Insurance apply as with normal salary. This is the structural trade-off against a personal policy's tax-free benefit, and it is why we model both before recommending either.
What happens if the insured person leaves the company?
The cover relates to their employment, so it usually ends or needs restructuring. Some insurers offer continuation options to a new employer or a personal policy. We check portability when selecting the insurer.
How long does the benefit pay for?
Either to the end of a limited payment period (often two or five years per claim) or until return to work or retirement age, depending on the policy chosen. Full-term cover costs more; limited terms suit businesses managing premium budgets. We price both.
Related
Other protection products that often pair with this one.
Income protection
A monthly income, tax-free, if illness or injury stops you working. Replaces 50 to 70% of salary. The most overlooked piece of protection.
Read moreRelevant life cover
Company-paid life cover for a director or employee, paid out to their family via trust. Often a tax-efficient swap for personally paid life cover.
Read moreGroup income protection
Employer-funded long-term sick pay, typically 50 to 75% of salary, with insurer-funded rehabilitation support to get people back to work.
Read moreWhat our clients say
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Protect the income behind the business
Book a quick 15-minute call with Ollie Allen or one of the Major Money Matters protection team. Tell us how you pay yourself and we will quote executive and personal routes side by side.
We aim to return your call as quickly as we can. Mon to Fri 9am to 5pm, weekend appointments on request.