Executive Income Protection
Executive Income Protection (Exec IP) is an income protection policy that is owned and paid for by the limited company that replaces loss of income due to an accident or illness. In the event of injury or illness that leads to loss of earnings, the plan pays a regular monthly benefit to the employer that can be passed on to the employee to help meet their financial commitments, without having to rely solely on state benefits. Exec IP is predominantly aimed at directors of limited companies.
These plans are set up in the name of the limited company for the benefit of the director and premiums are paid by the company. The premiums are not treated as a benefit in kind (that you would usually have to declare on the P11D form).
The main advantage of Exec IP plans compared to personal income protection, is that a wider range of benefits can be covered. This can include:
- Dividends paid to a spouse or partner
- Employer and employee pension contributions
- Employer national insurance contributions.
If a claim is made the benefit paid to the business will be treated as a trading receipt, when passed on to the employee it is treated as a trading expense. The result is a neutral tax position. When the benefit is paid by the business to the employee, it will be subject to tax and national insurance under the PAYE system. This is why Exec IP providers allow you to cover up to 80% of your gross annual income – to take into account the taxation of the benefit.