What Is Executive Income Protection and Who Needs It?

So, what is executive income protection? It's an insurance policy a limited company takes out on a director's life, insuring up to 80% of their combined salary and dividends and paying a replacement income to the business if illness or injury stops them working. It's designed for directors and business owners rather than employees on a group scheme.

Key facts

• Executive income protection is owned by the company, not the director personally.
• It suits directors and salaried company owners without access to group cover.
• Sole traders can't take out a policy; it's a limited company product.
• Cover always includes salary and dividends together, insuring up to 80% of the combined figure.
• A director's income and a non-working shareholder spouse's income can both be insured under one policy.
• The company pays the premium and receives any claim tax-free, then pays the director via payroll.

What Is Executive Income Protection?

In plain terms, executive income protection is a safety net for your income that your company pays for, built around salary and dividends together rather than salary alone. If you're too ill or injured to work, the policy pays a monthly benefit to your business, tax-free, which then continues paying you through payroll much as it always has. Our complete guide to executive income protection covers the full mechanics if you want the wider picture.

It sits apart from a personal policy because the company is the applicant, the payer, and the recipient of any claim, not you as an individual. It can also insure a working director alongside a non-working shareholder spouse under the same policy, which reflects how income is genuinely shared in many director-owned businesses.

Who Needs Executive Income Protection?

The clearest case for cover is a director whose income would simply stop if they became too unwell to work, with no employer-run scheme sitting behind them.

Company Directors and Owners

If you draw an income from your own limited company, whether through salary, dividends, or both, a long illness can hit your household finances directly. Executive income protection replaces that income while keeping the cost on the company's books rather than your own.

When Personal Income Protection Is a Better Fit

If you're a sole trader, a partner without a limited company structure, or an employee with strong existing employer cover, executive income protection isn't available to you or may not be necessary. In those cases, a personal policy is usually the right route; we compare the two directly in executive income protection vs personal income protection.

What Is Executive Income Protection in Practice? How It Works

The company applies for cover on the director, pays the monthly premium, and nominates a deferred period, the length of time before a claim starts paying out. If a claim is accepted, the insurer pays the company, and the company pays the director as usual through PAYE, so tax and National Insurance are handled in the normal way.

In short: executive income protection is a company-owned policy insuring up to 80% of a director's combined salary and dividends; premiums are a business expense; claims are paid tax-free to the company and passed to the director through payroll.

Is Executive Income Protection Right for You?

A quick way to check whether it's worth exploring:

• You're a director or salaried owner of a UK limited company.
• You don't have a large employer's group income protection scheme to rely on.
• Your household would struggle if your company income stopped for several months.
• Your company could afford the premium as a normal running cost.
• You want cover that's tailored to you rather than a one-size-fits-all group scheme.

If most of those apply, it's worth getting a quote. For sole directors specifically, we've set out the practical steps in structuring cover for directors.

FAQs

What is executive income protection insurance?

It's a policy a limited company takes out on a director's life, paying a replacement income to the business if that director can't work due to illness or injury.

Who needs executive income protection?

Company directors and business owners who rely on their own income and don't have access to employer-provided group income protection are the main audience.

Can a sole trader get executive income protection?

No. Executive income protection is a company-owned policy, so it's only available to limited companies. Sole traders should look at personal income protection instead.

How much of my income can executive income protection cover?

Up to 80% of your combined salary and dividends. Cover is calculated on the two together, not salary alone, which matters if you're paid mostly through dividends.

Can a non-working spouse be insured under an executive income protection policy?

Yes. A working director and a non-working shareholder spouse can both be insured under the same policy, reflecting how income is often shared in director-owned businesses.

Ready to look at cover? Get a quote for executive income protection and we'll talk you through what fits your circumstances.

Written by

Alex Ogden DipFA | Director | Executive Life

Alex Ogden DipFA holds the Level 4 Diploma for Financial Advisers (DipFA) awarded by the London Institute of Banking and Finance (LIBF). He is authorised by the FCA, Ref: AJO01072. View the FCA register entry.

This article is for general information only and does not constitute financial, tax or legal advice. Tax treatment depends on individual circumstances and may change in future. Executive Life is authorised and regulated by the Financial Conduct Authority. Speak to a qualified adviser before making any decisions based on this content.