Director IP
Company-owned income protection for company directors. Premium paid by the company. Benefit covers salary and potentially NI and pension contributions, subject to policy terms and underwriting.
Executive income protection is a policy owned by the company that provides a monthly benefit to a director or key employee who is unable to work due to illness or injury, protecting both the individual and the business.
Important: Executive income protection policies may have tax implications for the company and the individual. Tax treatment depends on individual circumstances and may be subject to change. Always seek independent advice from a qualified tax consultant before proceeding.
Executive income protection shares the same fundamental mechanism as personal IP, but the ownership, payment structure, and potential benefit level differ in important ways.
The company takes out and pays the premiums on the policy, rather than the individual. This means the cost comes from pre-tax company profits rather than the individual's post-tax income.
Executive IP may allow a higher proportion of income to be insured than a personally owned policy, in some cases. The benefit can also be structured to include employer's National Insurance contributions and pension contributions (subject to the specific policy terms and underwriting).
On a valid claim, the benefit is typically paid to the company, which then continues to pay the individual's salary. This maintains the employment relationship and removes the need for the individual to claim state benefits.
As with personal IP, the deferred period should be chosen to align with the company's sick pay provision. The policy picks up when company sick pay expires.
The benefit from an executive income protection policy can potentially cover more than just basic salary. Subject to the specific policy terms and underwriting, cover may extend to:
The core benefit replaces the individual's salary during the period of incapacity, enabling the company to continue paying the employee without using its own reserves.
The company's NI liability on the individual's salary may be included in the benefit, subject to policy terms and underwriting.
Some executive IP policies can include a benefit to cover the employer's pension contribution, protecting the individual's long-term retirement provision during a period of ill health. This is subject to policy terms and underwriting.
Long-term executive IP policies can pay to the individual's chosen retirement age, providing sustained income replacement for extended periods of illness or injury.
We compare specialist executive income protection products from all major providers.
Company-owned income protection for company directors. Premium paid by the company. Benefit covers salary and potentially NI and pension contributions, subject to policy terms and underwriting.
Company-owned income protection for key employees. Structured similarly to director IP but for non-director employees. Forms part of a competitive employee benefits package.
Group income protection covering multiple employees under a single policy. Usually more cost-effective for larger teams. One scheme, one renewal date, flexible individual benefit levels.
Deferred periods of 4, 8, 13, 26, or 52 weeks to align with the company's sick pay provision. Longer deferred periods reduce premiums. The deferred period should reflect when company sick pay stops.
Own occupation policies pay if the individual is unable to perform the specific duties of their own role, the most comprehensive and appropriate definition for most directors and senior employees.
Pays if the individual cannot perform work suited to their qualifications and experience. Less comprehensive than own occupation but may be available at lower cost for certain occupations.
The company owns the policy, not the individual. The company is the policyholder, pays the premiums, and receives the benefit payments on a valid claim. The individual director or employee is the insured person. This is the key distinction between executive IP and a personally owned income protection policy.
The tax treatment is complex and depends on the specific structure of the policy and the purpose of the benefit. Premiums paid by the company may be treated as a deductible business expense, but the benefit payments received by the company may be subject to corporation tax. The payments then made to the employee as salary are subject to PAYE and NI in the normal way. Professional tax advice should be sought before arranging this type of policy.
The deferred period should align with the company's contractual sick pay provision. The policy is designed to take over when the company's own sick pay stops. For example, if the company pays full salary for 13 weeks, a 13-week deferred period is appropriate. Longer deferred periods reduce the premium cost but increase the period during which the company must fund sick pay from its own resources.
Some executive IP policies can include a benefit to cover the employer's pension contribution alongside the salary benefit. This is subject to the specific policy terms, insurer appetite, and underwriting. Not all insurers offer this facility. Your adviser will identify the products that can accommodate pension contribution cover if this is required.
The key differences are ownership and payment structure. Personal IP is owned and paid for by the individual from post-tax income; the benefit is paid directly to the individual tax-free. Executive IP is owned and paid for by the company from pre-tax profits; the benefit is paid to the company, which continues to pay the individual as an employee subject to PAYE. Executive IP may allow higher benefit levels and can cover NI and pension contributions.
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