Executive Income Protection

If you’re a business owner or director, protecting key employees (including yourself) in the event of sickness or injury can be crucial to your long-term stability. That’s where executive income protection insurance can help. Here, we’ll cover how this income protection works, who needs it, and which UK insurers can provide it.

What is executive income protection insurance?

Executive income protection (EIP) is a type of insurance designed to provide regular, replacement income for key employees in small and medium enterprises (SMEs). It’s an insurance policy that can benefit both the employer and the employee by offering protection for both parties in the event of sickness or injury.

It provides security for employees if something unexpected happens, and helps employers cover the cost of sick pay and any other financial obligations. Unlike standard income protection, this policy is typically arranged by businesses for individual executives, ensuring they receive a replacement income while recovering.

How does it work?

An executive income protection policy is usually created and paid for by an employer or business (policy owner). When setting up the policy, you can name key employees to be covered (person insured). If a named employee becomes sick or injured by something the policy covers, it will pay out a portion of their gross salary.

This is usually up to 80% of earnings and is paid as a monthly benefit to the employer. The benefit can then pass on to the sick or injured employee via PAYE. Payments continue until the executive returns to work, the policy reaches its benefit limit (a set period or retirement age), or the policy term ends.

The tax treatment of executive income protection means it often qualifies as a deductible business expense. Cover can help replace an employee’s earnings, dividends and P11D benefits - it may also provide funds to replace the employer’s National Insurance (NI) and pension contributions. Executive income protection policies sometimes include support to facilitate a faster return to work.

Who needs it?

Executive income protection is particularly helpful for:

• Business owners and directors: It ensures a level of personal income protection while also helping to maintain business continuity.

• Key employees and executives: Policies can protect high earners whose lengthy absence could significantly impact business operations. It alleviates the need for an employer to cover the cost of expensive sick pay.

• Self-employed professionals: It can provide a financial safety net for self-employed people (including contractors) who don’t have access to employer-sponsored sick pay schemes, and helps ensure consistency of income in the event of illness or injury.

• Small and medium-sized businesses: You usually have to name the individual employees insured by the policy. So, fewer employees make this more manageable from an admin perspective, whereas it may not be suitable for a large company.

If your financial obligations and business responsibilities would be difficult to manage without certain employees, executive income protection is worth considering.

How insurers will assess your application

When applying for executive income protection, insurers evaluate several areas to determine the policy terms and premiums, including:

• Business type and industry: Higher-risk industries (like some forms of construction, for example) may lead to higher premiums due to an increased likelihood of work-related injuries or illnesses.

• Executive’s age and health: Younger, healthier employees and executives typically mean lower premiums. Whereas, older applicants or those with pre-existing conditions may lead to policy exclusions or higher costs.

• Income and cover: Business owners, directors and executives tend to have relatively high salaries. Replacing those larger salaries will usually be more expensive, and the percentage you replace in the event of a claim (50% to 80%, for example) will impact your options and premiums.

• Deferred period and definition of incapacity: In most cases, shorter deferred periods result in higher premiums, while longer periods can reduce costs. Also, policies with broader definitions of incapacity (perhaps covering physical and mental health conditions) tend to have higher premiums.

• Policy length: You can choose to receive regular payments for a fixed period - 1-2 years, for example. Or, a more expensive option is to select income protection that lasts indefinitely (usually until retirement or a certain age).

• Additional benefits: Basic executive income protection policies will usually be cheaper than more comprehensive policies with extra benefits like paying for employer’s NI and pension contributions, premium waivers, or services like rehabilitation support.

Keep in mind, some insurers require detailed medical underwriting, while others may offer policies with minimal assessment, particularly for larger group income protection applications.

Get an income protection quote online

Finding the right executive income protection policy can be complex. The most suitable protection depends on factors like your business structure, the executives you’re looking to cover, and how much cover you need. However, this sort of information isn’t always black and white.

Our specialist insurance advisors can provide accurate, tailored quotes for your business faster than online comparison platforms, ensuring you get the most suitable quote. Our advisors can quickly assess your specific business and executive needs, and match you with the right provider.

If you’d like a free, no-obligation chat with an advisor specialising in executive income protection insurance, you can get started here:

Get a bespoke executive income protection quote today

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How much does it cost?

The exact cost of executive income protection insurance will vary based on:

• Insurance provider: Choosing the best provider for your specific needs will significantly impact the overall cost of your executive income protection.

• Salary and cover: Higher earnings and a greater percentage of earnings coverage will usually increase your insurance costs.

• Comprehensive cover: Policies that cover a wider range of illnesses and injuries will usually be more expensive, but they tend to have a greater likelihood of paying out.

• Benefits provided: Some executive income protection polices only offer basic cover for a salary. However, for an extra cost, others may include additional benefits like replacing dividends and any P11D benefits, or subsidising pension and employer NI contributions.

• Policy terms: A shorter waiting time (deferred period) before regular payments begin will usually increase your costs. Also, a longer duration where benefits are payable can also increase premiums.

• Existing health conditions: Blanket policies that cover pre-existing conditions may lead to higher premiums or specific policy exclusions. However, young and healthy executives can be cheaper to cover.

Speaking with a specialist advisor is the best way to calculate the most cost-effective executive income protection policy with the most favourable tax treatment for your business’s circumstances.

Best executive income protection providers

The best provider for you to use will depend on your business needs and the people you’re looking to cover. Some of the most popular UK insurers offering executive income protection include:

• LV=: Liverpool Victoria’s executive income protection covers up to 80% of earnings with a maximum payment of £25,000 per month or £18,750 for inflation-linked cover. These figures include overtime, bonuses, P11D benefits, dividends and spousal dividends. It also covers employer's NI and pension contributions, with maximum limits of £42,500 and £40,000 respectively.

• Legal & General: Executive income protection policies with L&G automatically cover earnings, dividends, and P11D benefits - but employer NI and pension contributions cost extra. You don’t have to pay premiums while benefits are being paid, and you can opt for increasing, inflation-linked cover.

• Aviva: Although Aviva doesn’t offer a specific executive income protection product, its group income protection insurance is pretty flexible and can be tailored to your business and budget. For example, the maximum benefit is 80% for employees or 50% for equity partners, but the income benefit can be as much as £425,000 per year.

Keep in mind, executive income protection insurance policies vary in terms of costs and benefits. The best way to explore all your options is to get an experienced advisor to show you what’s available, which may involve approaching niche or specialist insurers.

Why choose Teito for your executive income protection insurance?

Finding the best executive income protection insurance policy isn’t always straightforward. Your professional circumstances and income protection needs will be unique, but expert support ensures you get the right cover at a competitive price.

Our experienced insurance advisors can help you find the most suitable and affordable income protection policy tailored to your specific business and the individuals you want to cover.

Here are some more of the reasons people and companies choose us to find them executive income protection insurance:

• We can provide tailored quotes for income protection

• Our advisors have 5-star ratings on leading review sites

• Your first chat is free, with no obligation to proceed

• Access to specialist insurers with exclusive deals for businesses

Ready to take advantage of a free, no-obligation chat with an advisor specialising in executive income protection insurance? Get started here.