Executive Income Protection

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Drewberry™ provide pensions, investment and insurance advice for Money to the Masses readers throughout the UK.

 

Why Executive Income Protection?

 

Provides you with a tax free monthly income should you be unable to work due to accident or sickness.

 

Cover both your salary and dividends and gain access to specialist plans which can be paid for by your company.

 

Income Protection is the one protection policy every working adult should consider. Which? Money 2013

 

Speak to our expert independent advisers or get an instant online quote to compare the UK’s leading insurers.

What is it for?
 

What does Income Protection cover?

Accident & Sickness

When the ‘Own Occupation’ definition of incapacity is used the policy can payout for any medical condition that prevents you from working in your own specific job role.

As income protection policies are not limited to a strict list of medical conditions that they cover and with many insurers having no standard exclusions, income protection is the most comprehensive form of accident and sickness protection available.

Under the Executive Income Insurance plan it is possible to cover up to 80% of gross earnings.

What does it cover?
 

How does Income Insurance work?

Stage 1:
You cease working due to any accident or sickness which prevents you from completing your job role.

Stage 2:
You make a claim with the insurer.(You will need a letter from your doctor and may need to complete a claims form).

Stage 3:
The insurer will start to pay a monthly tax free benefit after you have been unable to work for the length of your deferred period.

Stage 4:
The policy pays out until either you return to work or reach the maximum payout length, which could range from one year to retirement.

How does it work?
 

Do I need Executive Income Insurance?

Given the risk of incapacity, Income Protection is an extremely valued employee benefit and acts an important means of staff retention and attraction.

The Incapacity Risk:

1 in 10 people have been unable to work due to illness or injury for +6 months (The Guardian/Unum Survey, 2011).

The Consequences:

With government incapacity benefit of only £99.15 per week, someone with a salary of £30,000 would suffer a 77% fall in income.

Providing such a benefit for key employees ensures they can continue to meet their essential monthly outgoings if they were unable to work due to illness or injury

Do I need cover?
 

Your Key Options

Choose your level of cover

It is possible to cover up to 80% of gross (pre-tax) income. As Executive policies pay the business it is important to note that the employee would need to pay income tax on any benefit received.

Choose your deferred period

This is the length of time you would need to be off work before the policy starts paying out.

Choose your payout length

Short-term plans can payout for a maximum of 12 or 24 months and long-term plans can continue paying out either until you are well enough to return to work or you reach your expected retirement age.

What are my options?
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Sam was knowledgeable and attentive and spent a long time explaining and working out what Income Protection insurance would be best for me.

Elizabeth Owen
10/10/2017

How does executive income insurance work?

With an Executive plan the policy is owned by the company but is underwritten on the life of an employee or director. If that staff member needs to go off work due to ill health the plan would pay out a monthly benefit to the business, with the business then distributing the funds to the employee via the usual payment method (e.g. PAYE).

How long the policy can continue paying out is an option that needs to be selected from the policy outset. It is possible for plans not to have a payout limit so it could keep paying out right up until retirement age if the employee is unable to return to work, or the payout length can be set at a maximum of 2 years or 5 years.

With this type of plan 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.

Key policy details

The policy pays out a monthly benefit to replace lost earnings due to ill health;

How much can I cover?

It is possible to cover up to 80% of gross earnings (which can include dividends).

For how long will I be covered?

The policy can payout for 2 years, 5 years or up until retirement age (optional).

Whe would it start paying out?

The plan would start paying out after a ‘deferred period’ (options of 4 to 52 weeks).

How do you go about setting up a policy?

Executive Income Protection Insurance is a type of cover that needs to be set-up by an adviser. Please feel free to call us on 0208 432 7333 to get started.

The process for setting up cover is as follows:

  1. Contact an adviser to provide specific information about the employee to be insured, such as age, earnings, occupation and any health considerations;
  2. Decide on the policy options you would like to gain pricing for, which may vary depending on the following:
    1. Level of cover to be offered, which often ranges from 50% to 80% of gross income;
    2. Setting the deferred period, which is commonly set in-line with the end of any company provided sick pay;
    3. Deciding whether Employer National Insurance and Pension Contributions are to be insured;
    4. Discuss what options you would like to see varying the policy payout period, with the shortest being 2 years and the longest being until retirement.
  3. The adviser sends you (via email) a range of options that are within budget for you to consider;
  4. Once an option is selected we can run through the application with the employee / director over the telephone;
  5. The insurer will then consider the medical information in the application before making an offer of insurance.

How is the policy taxed?

Given that this policy is owned by the business the monthly premiums would be paid for and expensed through the business. However, any benefit paid out by the policy would be taxable as income for the employee and this should be remembered when setting the level of cover.

Naturally, if the employer is paying Employer National Insurance Contributions on the income it pays to staff then this would also be due on any of the benefit that is paid out, that is why it is wise to consider including the policy option to cover Employer NI, especially for plans with a payout period to retirement (i.e. without a 2 or 5 year payment limit).

Alternatives to executive cover?

Executive Income Protection is often taken out by a company for one of their staff members or Directors as an employee benefit. It is therefore an individual plan (owned by the firm) with individual pricing rates.

However, if the company has a minimum of three employees that they would like to be covered then it is possible to take set-up a Group Income Protection Scheme, which would cover all the employees under one policy and benefits from lower group insurance rates.

What other benefits should I consider?

Other policies that typically make-up an employee benefits package include the following:

Relevant Life Insurance

If cover is required just for one employee then a Relevant Life Policy is the most tax efficient means of gaining cover as the premiums can usually be expensed and the benefit is paid tax-free via a specific relevant life trust;

Private Medical Insurance

This is a particularly popular employee benefit as the policy would cover the cost of private medical treatment, private health insurance enables you to avoid potentially long NHS waiting lists and allowing the employee to return to work as quickly as possible.

In addition to Executive Income Protection, we are also able to help with these other employee benefits, either as individual plans or as a group scheme for multiple staff members, simply call us on 0203 432 7333.

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Actual Income Protection Claims

 

The table below details real life stories of how an income protection policy has saved someone financially following an illness which left them unable to work.

The information is from Liverpool Victoria's 2011 claims, it demonstrates how anyone can lose their income, regardless of age, gender or occupation, LV's youngest claimant in 2011 was just 22 years old.

Age at Claim
Gender
Occupation
Length of Claim
Cause of Claim
Last Monthly Benefit
Total Payout So Far
31
Male
Carpet Fitter
15 years
Brain damage from road traffic accident
£303.00
£55,449.00
43
Male
Accountant
7 years
Cyst removed from the Brain
£3,194.00
£255,520.00
46
Female
Veterinary Surgeon
12 years
Arthritis
£369.00
£51,291.00
48
Male
Estate Agent
14 years
Heart Attack
£4,883.00
£805,695.00
48
Male
Doctor
1 year
Depression
£3,357.00
£53,712.00
49
Male
Physiotherapist
3 years
Depression
£1,942.00
£73,796.00
48
Male
Quantity Surveyor
7 years
Stroke
£2,528.00
£207,296.00
51
Female
Marketing Consultant
2 years
Breast Cancer
£2,434.00
£48,680.00
59
Male
Solicitor
1 year
Parkinson's Disease
£2,156.00
£26,452.00
Source: http://www.lv.com/upload/IFA-Rebrand-2009/pdf/2012/aug/212248312PMFPPAPIPclaimsSummary.pdf
 
Our Mission at Drewberry™

To provide expert financial advice and deliver a passionate 5-star service to help educate our clients so they can make informed decisions.

To help individuals and businesses throughout the UK to plan their financial future whilst protecting them against the financial risks they may face.

To provide quality financial advice in a transparent, friendly and professional manner.

 

Occupation Definition Calculator

Make sure your Income Protection covers you in your 'Own Occupation'!

Too often individuals take out income protection without being fully aware of the incapacity definition on which their plan would pay out.

Will the plan pay out if I am unable to do my current job role? Or will it only pay out if I am unable to do any occupation?

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If you do not already have income protection this tool should provide you with guidance as to what to look out for and to ensure you do not fall foul of a lesser occupation definition.

Robert Harvey
Independent Protection Expert at Drewberry Insurance

Your Occupation
 
Manual Work (%)
Business Mileage
  annual mileage  
Overseas Travel
  trips per year
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Frequently Asked Income Protection Insurance Questions

 
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