Executive income protection for husband and wife directors
If you and your spouse both work through the same limited company, the business can potentially arrange executive income protection for both of you.
You would normally have a policy each, and the amount of cover doesn’t have to be the same. Your earnings and the work you do for the company will both come into it.
This can be important in a 50:50 company. You might own equal shares and receive equal dividends, but that doesn’t necessarily mean an insurer will offer you the same level of cover.
Can both directors have executive income protection?
Yes. The company can arrange a separate policy for each director.
The company owns the policies and pays the premiums. If either of you becomes unable to work and has a successful claim, the benefit from that policy is normally paid to the company.
The policies don’t have to match. You could have different monthly benefits, deferred periods or policy end dates.
How much can each director insure?
One director may be able to insure more than the other, depending on the salary and dividends each receives and how they work in the business.
For example, one spouse might work full-time and bring in most of the household income, while the other works only a couple of days a week. An insurer may treat its earnings differently, even if it owns 50% of the company.
For more information on choosing a benefit level, read our guide to how much executive income protection you need.
What happens with a 50:50 company?
It’s common for husband and wife companies to be owned equally, with each spouse holding 50% of the shares.
That can mean dividends are split equally even when the two directors have very different roles in the business.
Don’t assume that an equal shareholding means an insurer will recognise the same income for both directors.
Insurers have different ways of dealing with dividends and may look at the work each person does, as well as the company’s profits and how its income is generated.
Can dividends paid to your spouse be covered?
They can be, but receiving a dividend doesn’t automatically make it insurable income.
A dividend is paid because someone owns shares in the company, rather than as payment for doing a particular job. This becomes relevant where one spouse does most of the work but both receive the same dividends.
If you both work actively in the business, an insurer may include qualifying dividends when calculating the cover available to each of you. If one spouse does very little work for the company, the insurer may take a different view of their dividend income.
For more information on this, read our guide to salary vs dividends for income protection.
What if only one spouse works full-time?
That’s not unusual in a small family company. One of you might carry out most of the company’s trading work while the other deals with bookkeeping, administration or other work for a few hours each week.
Both of you can still be directors and shareholders, but your income protection needs won’t necessarily be the same.
The full-time director might want more cover, particularly if most of the company’s income depends on their work. The other director may still be able to get executive income protection, but the amount available will depend on their own earnings and involvement in the company.
Does the company get tax relief on both policies?
It may do. Premiums for executive income protection can potentially be treated as an allowable business expense for Corporation Tax purposes.
The fact that the two directors happen to be married doesn’t determine the tax treatment. Each policy still needs to be set up correctly and meet the usual requirements.
For more information on premiums, Corporation Tax and claim payments, read our guide to executive income protection tax for company directors.
Do both directors need the same deferred period?
No. This is another area where there’s no need for the two policies to match.
If the company could manage without one director for several months, that person might be comfortable with a longer wait before payments start.
The position could be very different for the director who brings in most of the company’s revenue. A shorter deferred period may make more sense if their absence would affect the household finances much sooner.
For more information on the different waiting periods available, read our guide to income protection deferred periods.
How much would two policies cost?
Each policy is priced separately, so don’t expect the premiums to be identical.
The insurer will take into account factors including:
- age;
- occupation;
- health and medical history;
- smoking status;
- the monthly benefit;
- the deferred period; and
- how long the cover will run.
One spouse could therefore pay considerably more for the same monthly benefit, particularly if there’s a sizeable difference in age, health or occupation.
For more information on the factors behind the premium, read our guide to the cost of executive income protection.
What if one director has a medical condition?
Each application is underwritten separately. A health problem affecting one spouse doesn’t normally affect the other spouse’s application.
The director with the medical history might be accepted on standard terms, charged a higher premium or offered cover with an exclusion. In some cases, the application could be postponed or declined.
It’s quite possible for the two directors to receive different decisions even though the policies are being arranged by the same company.
For more information on how previous health problems are dealt with, read our guide to executive income protection and pre-existing medical conditions.
What happens if one director makes a claim?
The claim is made against that director’s policy. The other spouse can carry on working as normal.
If the claim is accepted, payments will normally start once the deferred period has ended and will be made to the limited company. The company can then use the money to continue paying the director who can’t work.
For more information on what happens at this stage, read our guide to making an executive income protection claim.
What if you already have personal income protection?
Having personal income protection doesn’t necessarily mean you should cancel it when considering executive cover.
Existing insurance can affect how much additional income protection you’re able to have, and the two types of policy are taxed differently.
Don’t cancel an existing policy until you know what new cover has been accepted and on what terms.
For more information on the differences, read our comparison of executive vs personal income protection.
Arranging cover for two directors
If you both work for the company, there’s no particular reason why you should buy two identical policies.
Look at what each of you earns, the work you do and what would happen financially if either of you couldn’t work for a long period.
For a 50:50 husband and wife company, make sure you know how each insurer will treat your dividends. This can make a real difference to the amount of cover available to each director.
If you’re considering cover for both directors, a specialist IFA can check what different insurers will cover and compare the quotes available for each of you.