Executive income protection insurance

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    Chris Godfrey

    Page written by Chris Godfrey. Last reviewed on May 26, 2024. Next review due April 6, 2025.

    For many business owners, especially those within small companies, being unable to work because they are injured or sick will usually mean a loss of some or all of their income. This can have life-changing impact, causing them to fall behind on mortgage payments, run up debts, run foul of the tax man, even lose their business. Fortunately, executive income protection is available to eliminate this threat. Use it to protect directors and key employees – safeguarding their earnings and preventing financial catastrophe should the worst ever happen.

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      What is executive income protection insurance?

      Designed to support small and medium-sized companies, executive income protection (EIP) is a type of business insurance. It pays a regular monthly benefit should a key employee or director become too ill or injured to work. Popular with contractors and directors working in their own limited company, EIP can reduce the impact of long-term illness or injury, covering up to 80% of the insured’s income. 

      Key features of an executive income protection insurance policy

      • Suitable for directors or employees of limited companies
      • Usually counts as a tax-deductible expense to the company
      • Protects an individual from loss of income due to illness or injury
      • Tax-efficient way of taking out income protection
      • Can cover up to 80% of the insured’s income, including dividends and directors’ loans
      • Options to also cover employer national insurance payments and pension contributions, as well as spousal earnings

      Policy details:

      • Policy term – policy will usually run until the employee retires or reaches a maximum age of 70 years.
      • Payout period – choose between short-term plans which pay out for 1-5 years, or a long-term plan that pays out until the employee is well enough to work again or reaches the policy end date.
      • Deferral period – this is the amount of time the insured needs to be off work before the policy starts to pay out. The longer the deferral period the lower the premiums are. 1 to 4 weeks is a typical deferral period.
      • Guaranteed or reviewable premiums – reviewable premiums are cheaper initially, however the insurer will retain the option to review the prices periodically (usually every 5 years). 
      • Index linking – for extra cost, the plan may be set to track inflation, with benefits rising to match the Retail Price Index (RPI). This will cost more but it means the plan is likely to remain more relevant in the future.

      What does executive income protection cover?

      Executive income protection insurance will cover the income of the insured, whether that is generated by salary, dividends, director’s loans, or P11D benefits.

      How does executive income protection work?

      Executive income protection protects the insured’s income in the event of accidental injury or any medical issue they may suffer from except those they experienced in the past (known as ‘pre-existing conditions’). 

      The policy is arranged and paid for by the company (the policy owner) on the life of the employee (the person insured). If the employee becomes ill or injured and is unable to work, the company makes a claim against the policy. All payments from the insurer are paid to the company who then pass those payments to the employee via PAYE to fund their ongoing sick pay. The employee can use the funds to cover normal expenses, such as mortgage payments, food and utilities.

      Who is executive income protection for?

      Executive income protection is for the owners, directors and key employees of a limited company. Sole traders, the self-employed and partnerships who do not work through their own limited company should purchase individual income protection insurance. This cover is similar to EIP, but may have differing levels of cover, with any claims being paid direct to the individual, not via a company and PAYE.

      Is this cover essential?

      Yes, it is. The temporary or long-term loss of a key company director or employee can have great impact on the business, but it can be even more devastating to the individual who suffers sickness or injury. Relying on reduced income from statutory sick pay and state benefits may not be sufficient to cover their day-to-day expenses or fund any specialist medical support they need. Executive income protection insurance is designed to pick up the slack, ensuring company owners and their all-important employees can adequately maintain their lifestyle as they recover.

      How Swoop can help

      Don’t let illness or injury impact your business and the lives of your employees. Register with Swoop today to compare top-quality executive income protection from a range of insurers and to discuss all your business insurance needs.

      Written by

      Chris Godfrey

      Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Barclays Bank, Metro Bank, Wells Fargo, ABN Amro, Quidco, Legal and General, Inshur Zego, AIG, Met Life, State Farm, Direct Line, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of consumer and business finance and insurance.

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