Can a new limited company take out executive income protection?
You don’t necessarily need several years of company accounts before taking out executive income protection.
If you’ve recently set up a limited company, an insurer will want to know what you expect to earn and how you’ve arrived at those figures. Your previous earnings and any contracts already in place may also help.
Do you need several years of company accounts?
Not necessarily. This is an obvious concern if you’ve only recently incorporated and don’t yet have a set of annual accounts.
A lack of historic accounts doesn’t automatically prevent you from applying. What the insurer asks for will depend on your circumstances and the amount of cover required.
How is your income assessed if the company is new?
With an established company, you already have financial records showing what the business earns and how much it pays its director.
A new company won’t have the same history, so the insurer may ask about your expected salary and dividends, what the company does and how you’ve calculated your expected income.
Your previous earnings can also be useful, particularly if you’ve moved from employment or an established contracting business into a new limited company doing similar work.
The insurer will want enough evidence to support the amount of cover you’re asking for.
For more information on how director earnings are treated, read our guide to salary vs dividends for income protection.
What if you’ve just moved from employment to your own company?
This is common among consultants and contractors.
You might have earned £70,000 as an employee before setting up a limited company to provide similar services. The company may only have been trading for a few months, but your previous salary still provides some evidence of what you were earning before you incorporated.
The insurer may also look at the work your new company is doing and any contracts you already have.
If you work on contracts through your company, read our guide to income protection for limited company contractors.
What if your company hasn’t started making a profit?
A new business can take time to become profitable, and this may affect how much cover an insurer is prepared to offer.
Executive income protection is there to protect your earnings if illness or injury stops you working. It isn’t a way of guaranteeing the income you hope the company will generate in future.
If the business has only just started trading, you may be asked for more information about its finances and your expected remuneration.
Can a new contractor company get executive income protection?
Yes. A newly formed contractor company can apply for executive income protection.
If you already have a contract, this can provide useful evidence of the work the company is doing and the income coming into the business.
But executive income protection doesn’t insure the contract itself. If the contract ends and you’re still fit to work, you can’t normally claim simply because the company’s income has stopped.
For more information on what isn’t covered, read our guide to executive income protection exclusions.
Can you increase the cover once the company is established?
Yes, potentially. You might start with a relatively modest amount of cover and review it once the company has been trading for longer and your earnings have increased.
Whether you can increase the benefit, and whether you’ll need further financial or medical underwriting, will depend on the policy.
For more information on the options available, read our guide to increasing your executive income protection cover.
Does the company need to employ anyone else?
No. You don’t need other employees.
A one-person limited company can potentially arrange executive income protection for its director, provided the director is eligible and the insurer accepts the application.
This makes the cover relevant to consultants, contractors and other professionals who run their businesses through small limited companies.
For more information on who can apply, read our guide to executive income protection eligibility.
Should you wait until the company has been trading for longer?
You don’t have to wait until the company has several years of accounts before looking at cover.
Waiting will give you a longer financial history and may make your earnings easier to demonstrate. But you’ll also spend that time without the protection in place.
If you’ve recently set up your company, a specialist IFA can check which insurers will consider newer businesses, what evidence of earnings they need and compare quotes from leading providers.