How much does executive income protection cost?
Executive income protection can cost from around £25 per month for a younger director with relatively modest cover to £100 or more for an older applicant or someone who wants a higher monthly benefit.
There is no standard price. Insurers calculate premiums individually, based on factors including your age, occupation, health, smoking status, the amount of income you want to protect and how quickly you want payments to start.
Example executive income protection costs
The examples below give a rough indication of how premiums might vary for a healthy non-smoker in a mainly office-based occupation.
| Director | Monthly benefit | Deferred period | Cover | Indicative monthly premium |
|---|---|---|---|---|
| Age 30 | £2,000 | 13 weeks | Long-term | £25–£35 |
| Age 40 | £2,000 | 13 weeks | Long-term | £35–£50 |
| Age 50 | £2,000 | 13 weeks | Long-term | £60–£85 |
| Age 40 | £3,000 | 13 weeks | Long-term | £50–£70 |
| Age 40 | £2,000 | 4 weeks | Long-term | £45–£65 |
These figures are illustrative rather than quotations. Actual premiums can be higher or lower depending on the insurer and your circumstances.
They do, however, show the broad effect of age, the amount of cover and the deferred period on the likely cost.
What affects the cost?
Insurers look at several factors when calculating an executive income protection premium.
Your age
Age is one of the biggest influences on price. A director taking out cover in their 30s will normally pay less than someone arranging equivalent cover in their 40s or 50s.
The insurer is assessing the likelihood of a claim during the policy term, as well as how long it might have to pay benefits.
For more information on how age affects the cover available, read our guide to executive income protection age limits.
How much income you want to protect
The greater the monthly benefit, the higher the premium will normally be.
Executive income protection can often cover more than your PAYE salary alone. Depending on the insurer, the calculation may take account of:
- PAYE salary.
- Dividends arising from your work for the company.
- Employer pension contributions.
- Employer National Insurance contributions.
Insurers set their own limits and methods for calculating the maximum benefit available.
For more information on choosing a benefit, read our guide to how much executive income protection you need.
If you take a low salary and higher dividends, read our guide to salary vs dividends for income protection.
Your occupation
The type of work you do can make a significant difference to the premium.
An office-based company director presents a different risk from someone whose work involves substantial manual activity, driving, working at height or other physical duties.
Insurers also classify occupations differently, so two insurers can quote different premiums for the same director.
The definition of incapacity matters too. An own occupation definition assesses whether you can carry out your particular occupation rather than a wider range of work.
For more information on this definition, read our guide to own occupation executive income protection.
Your health and medical history
Your health is assessed when you apply for income protection.
Someone with no significant medical history may be accepted at the insurer’s standard premium. If you have an existing or previous medical condition, the insurer may:
- Offer cover at its normal price.
- Charge an increased premium.
- Exclude a particular medical condition.
- Request further medical information.
- Postpone or decline the application.
The outcome depends on the condition, its severity, treatment and medical history.
For more information on how insurers assess an application, read our guide to income protection underwriting. We also have a separate guide to executive income protection and pre-existing medical conditions.
Smoking and nicotine use
Smoking can increase the cost of income protection.
Insurers may also ask about other nicotine products, including vaping and nicotine replacement products. Their definitions vary, including how long you need to have stopped using nicotine before being treated as a non-smoker.
Your deferred period
The deferred period is the length of time between becoming unable to work and the insurer starting to pay your monthly benefit.
Common options include 4, 8, 13, 26 and 52 weeks.
A longer deferred period will normally reduce the premium. Someone choosing to wait 13 weeks before receiving benefits would generally pay less than someone wanting payments to start after four weeks.
You’ll need enough money to cover the gap, though. If your company has substantial cash reserves or could continue paying you for several months, a longer deferred period may be practical. If you have little financial buffer, you may prefer a shorter period despite the additional cost.
For more information on choosing the waiting period, read our guide to income protection deferred periods for company directors.
How long benefits can be paid
How long the policy will pay out for also affects the premium.
You can choose cover that pays for a fixed period, such as one, two or five years, or long-term cover that can continue for much longer.
The longer the potential payout period, the more the policy will usually cost.
For more information on benefit periods, read our guide to how long income protection can pay you for.
Level or increasing cover
You may be able to choose between level and increasing benefits.
With level cover, the insured monthly benefit remains broadly fixed. Increasing cover allows the benefit to rise over time, usually in line with inflation or by a specified annual percentage.
This is worth considering with long-term cover, as the same monthly benefit will buy less if you need to claim many years after taking out the policy.
Increasing cover will generally cost more than equivalent level cover.
Guaranteed and reviewable premiums
It’s also worth checking whether the premium is guaranteed or reviewable.
Guaranteed premiums are set according to the terms agreed when the policy starts and are not normally increased simply because the insurer’s overall claims experience deteriorates.
Reviewable premiums can be reassessed by the insurer at specified intervals.
A cheaper starting premium isn’t necessarily the cheaper option over the life of the policy.
For more information on the difference, read our guide to guaranteed vs reviewable executive income protection premiums.
What does a £50 monthly premium really cost the company?
Executive income protection is normally paid directly by the limited company.
Take a premium of £50 per month, or £600 per year. If it qualifies as an allowable business expense, the premium reduces the company’s taxable profit.
At a Corporation Tax rate of 19%, a £600 annual premium would reduce the company’s Corporation Tax bill by £114. That gives an effective cost after tax relief of £486 per year, or £40.50 per month.
| £50 monthly premium | Amount |
|---|---|
| Annual premiums | £600 |
| Corporation Tax saving at 19% | £114 |
| Effective annual cost | £486 |
| Effective monthly cost | £40.50 |
This is an illustration rather than a quote or guarantee of tax relief.
Corporation Tax rates vary according to company profits, and executive income protection premiums do not automatically qualify for a deduction simply because they are paid by the company.
For more information on premiums, claims and their tax treatment, read our guide to executive income protection tax.
Why company-paid cover can be attractive
The comparison with personal income protection isn’t just about the two insurance premiums.
A personal policy is normally paid from money you have already taken out of your company and on which personal tax may have been paid. With executive income protection, the company pays the insurer directly.
Where the premium qualifies as a business expense, the company may also receive Corporation Tax relief.
The treatment of a claim is different too. A successful personal income protection claim is normally paid directly to the individual tax-free. With executive income protection, the benefit is normally paid to the company and is generally treated as taxable business income before the company continues remunerating the director.
For more information on the differences, read our guide to executive vs personal income protection.
How can you reduce the cost?
There are several ways to bring down the premium without necessarily reducing the monthly benefit.
You could:
- Choose a longer deferred period.
- Choose a shorter maximum claim period.
- Arrange cover at a younger age.
- Select level rather than increasing benefits.
- Reduce the policy term or end age.
Reducing the monthly benefit will also lower the premium, although this leaves more of your income uninsured.
The important thing is not to cut the premium so far that the policy would leave you short of money if you had to make a long-term claim.
Getting an accurate price
The examples above can give you an idea of the likely cost, but you’ll need an individual quote to get an accurate figure.
An insurer will normally ask for details of your:
- Age.
- Occupation.
- Smoking or nicotine status.
- Medical history.
- Required monthly benefit.
- Deferred period.
- Benefit period.
- Policy term.
For company directors, it may also require details of your salary, dividends, and company finances to determine how much cover you can have.
Prices and underwriting decisions can vary between insurers, so it’s worth comparing more than one provider.
A specialist IFA can answer your questions, work out the cover you need and compare executive income protection quotes from leading providers.