Executive income protection is designed for small to medium-sized businesses looking to offer selected employees the benefits of extended sick pay.
In most businesses there are certain employees and members of management who are considered vital to the success of the business. They are typically the highest paid and subsequently they demand the most fiscally generous benefits packages. So, it makes sense to take out, on their behalf, an income protection insurance policy that safeguards these key personnel’s income should they be unable to work due to illness or injury.
An executive income protection policy is owned by the company but is underwritten on the life of an employee or director. If that staff member is off work due to illness or injury, the policy would pay out a monthly benefit to the business, which the business must then distribute to the employee via the usual payment method (e.g. PAYE).
Due to the tax efficiency and high percentage of income that can be covered, it is a great way for key members of a small business to protect their income against being unable to work.
The monthly benefit can be up to 80% of the employees’ gross income which, unlike regular income protection, can include dividends, commission, bonuses, overtime and pension contributions (as long as the insured person can prove that this has formed part of their normal salary over the last three years) and P11D benefits which would be lost in the event of incapacity.
The business receives Corporation Tax relief on the premiums as it is a deductible business expense.
With this type of policy, it is also possible to select options where the insurer would also cover Employer National Insurance Contributions (NICs) and employer pension contributions, thus removing any ongoing financial outlay for an incapacitated employee.
Roxburgh Financial Management was set up to provide specialist help to people unsure how to go about choosing from the many protection products available. We ensure that you are in a fully informed position before any application is completed with you. This gives you the peace of mind of knowing that the recommendations made by our specialists will be tailored to your specific needs and budget.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
Five reasons to use us
1. We offer insurance advice with no obligation
2. We will explain the good, the bad, and the ugly
3. We will ask the right questions
4. We do all the work, right through to helping complete the application form
5. We can access a comprehensive range of insurance providers
Executive income options
As with all things, the more options you choose the higher the price. Executive income protection is no different and different insurers load the options differently. It is therefore important to determine what you need and what you would like so we can find the best income protection policy available to you in the market place. Below are some of those options.
This is the period (in weeks or months) following a claim before the benefit you are expecting is paid to you. The longer this period is, the cheaper the premium cost of the plan. It is normally based on what your employer sick pay (if any) is, and how long you can survive financially (i.e any savings you would use).
This can be one year, two years, and five years per claim; or up to your selected retirement age. The shorter the maximum period per claim the cheaper the premium becomes; however, the plan will stop paying if you are still off work after the selected period.
Level or indexed
‘Level’ means that the amount you receive will remain the same throughout the time you have the insurance, regardless of whether your income or expenditure increases. Alternatively, the amount you receive can increase each year in line with inflation, using either the Retail Price Index (RPI) or the Consumer Price Index (CPI).
Guaranteed, reviewable and age-costed
With guaranteed premium policies, the basic premium you pay stays the same throughout the policy term unless you increase the required income amount (or if you have indexation). A plan with reviewable premiums (typically ASU) is reviewed by the provider each year (like home insurance) and a new set of terms are then issued for the next 12 months.
There may be no change. But, the provider can change the premium.
Age-costed premiums, change each year based on your age. These changes are pre-set by the provider and are either ‘set in stone’ or can be reviewed. However, the provider cannot change the terms and conditions of the plan in any way or remove the cover.
Waiver of premium
If ‘waiver of premium’ is selected then, when you begin receiving an income from the insurance policy, the premiums paid will be refunded back to you until the claim finishes.
Most ASU plans do not offer a waiver of premium option, meaning you must pay for the plan whether in claim or not.
“Own” or “Any” occupation
When the ‘Own Occupation’ definition of incapacity is chosen, the policy can pay out for any medical condition that prevents you from working in your own specific job role. When ‘Any’ is used, the insurer will only pay you if you are unable to perform any occupation. ‘Own’ is more expensive than ‘Any’.
Benefits-in-kind / P11D benefits
Some insurers also offer the option of protecting the value of any employment benefits, such as a company car or private health insurance.
Receive a percentage of your income if, on returning to work, the illness or injury you claimed for restricts your duties and you earn less. Some insurers will also pay a top-up should you start a different occupation that pays less.
Some insurers also offer the option of a cash sum if the life insured is admitted to hospital as an in-patient for a continuous period of more than a number of consecutive days during the deferred period.
Option that enables cover to be increased without further underwriting on policy anniversaries or at key life stages such as marriage, having children, or in the event of a promotion-related salary increase.
The option to cover employer National Insurance contributions and any pension/life assurance premiums paid in relation to the insured individual.