Executive Income Protection: Company-Funded Sick Pay
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Is Executive Income Protection Suitable for You?
EIP is designed for directors and key employees of limited companies.
Who Needs Exec Income Protection?
If you are the sole revenue generator for your business, your inability to work means the business stops earning immediately. EIP ensures you continue to receive an income while you recover.
Standard personal income protection policies often struggle to cover dividend income efficiently. EIP is specifically designed to cover both salary and dividends.
Small consultancies, marketing agencies, and financial firms where the directors are the primary fee-earners rely heavily on the continuous health of their leadership team.
Key Financial Benefits
Funding income protection through the business offers significant advantages over paying for a personal policy.
The premiums paid by the company are generally treated as an allowable business expense for Corporation Tax purposes.
The premiums are not treated as a P11D benefit-in-kind, so the director pays no personal income tax or National Insurance on them.
EIP policies can often cover up to 80% of your gross earnings (salary plus dividends), which is typically higher than the limits available on personal income protection policies.
The policy can be structured to cover not just your income, but also your employer pension contributions and employer National Insurance, ensuring your long-term financial planning isn’t derailed by illness.
Case Studies
Key Considerations
When setting up Executive Income Protection, several factors must be tailored to your specific business:
- The Deferred Period: This is the waiting period before the policy starts paying out (typically 1, 3, or 6 months). A longer deferred period reduces the premium. You should align this with how long your company’s cash reserves could sustain your income.
- The Payment Term: You can choose a policy that pays out for a limited period (e.g., 2 or 5 years per claim) or one that pays out right up until your planned retirement age.
- Tax on the Payout: While the premiums are tax-deductible, the payout is treated as a trading receipt for the business and is subject to Corporation Tax. When the business passes the money to you, it is subject to standard PAYE income tax and National Insurance.
Speak to a Broadbench Specialist
Don’t rely on your company’s cash reserves to act as your sick pay fund.
Speak to a Broadbench specialist today to design an Executive Income Protection policy that secures your lifestyle and your business’s financial stability.
FAQs
How does Executive Income Protection work?
Executive Income Protection (EIP) covers an employee’s sick pay if they are unable to work due to illness or injury. The benefit is paid to the company, which then passes it on to the employee, with tax applied at that stage.
Who is the owner of an Executive Income Protection (EIP) Plan?
The policy is owned and funded by the business, not the insured individual.
How long does income protection last?
You can choose the policy duration, but it cannot extend beyond your retirement age.
What is short-term income protection?
A short-term income protection plan provides coverage for a portion of your income if you’re unable to work due to illness or injury, typically for up to 12 or 24 months per claim.
What is long-term income protection?
A long-term policy covers a portion of your income until you either return to work or the policy expires. Most plans offer coverage up to retirement age.
What is a deferral period?
The deferral period is the waiting time between becoming ill or injured and when you can start claiming benefits. Shorter deferral periods increase the cost of the policy.
For example, if you have three months of sick pay and savings to cover two additional months, a five-month deferral period may be suitable.
What is "waiver of premium"?
Waiver of premium is a feature that covers your insurance payments while you’re claiming benefits. This is typically included as standard with executive income protection.
Protect Your Income, Protect Your Business
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