Executive vs group income protection
Executive and group income protection both help employers continue paying staff who are off work because of illness or injury. The main difference is how the cover is arranged and who it covers.
Executive income protection is normally arranged by a company for an individual director or employee. Group income protection covers a group of employees under an employer’s scheme.
For small limited companies and owner-directors, executive cover is usually the more relevant option.
What’s the difference?
The main difference is how the cover is arranged.
| Executive income protection | Group income protection | |
|---|---|---|
| Who is covered? | Usually one director or employee per policy | A defined group of employees |
| Who arranges it? | The employer | The employer |
| Who pays the premiums? | The employer | The employer |
| Who receives the benefit? | Normally the employer | Normally the employer |
| Medical underwriting | The individual will normally be medically underwritten when the policy is arranged | Cover up to a scheme’s free cover limit may be available without individual medical underwriting |
| Best suited to | Owner-directors, small companies and selected employees | Businesses providing income protection to a wider workforce |
How does executive income protection work?
Executive income protection is taken out by a company to insure a particular director or employee.
If that person becomes unable to work and the claim is accepted, the insurer normally pays a monthly benefit to the company after the deferred period.
The company can then use the benefit to continue paying the insured person while the insured person is unable to work.
For limited company directors, cover may be based on salary and qualifying dividends, depending on the insurer and circumstances.
Our guide to income protection for limited company directors looks at how the arrangement works.
How does group income protection work?
Group income protection is an employee benefit arranged by an employer for a group of people rather than a separate policy being taken out for each employee.
The employer decides which employees are eligible for the scheme. This might include all employees or a particular category of staff.
If an employee covered by the scheme is unable to work beyond the deferred period, the employer can make a claim. If the claim is accepted, the insurer pays the benefit to the employer to help cover the employee’s continued pay.
Do you need a certain number of employees for group cover?
Group income protection is designed for businesses insuring a number of employees, and insurers set their own minimum requirements for setting up a scheme.
This makes it less suited to a typical one-person limited company.
A contractor or consultant who is the only employee of their company would normally consider executive income protection rather than establishing a group scheme.
See our guide to income protection for limited company contractors.
How does medical underwriting differ?
This is one of the more important differences between executive and group cover.
An executive income protection application is normally assessed individually. The insurer asks about the person’s health, occupation and other factors before deciding what terms to offer.
Group schemes can work differently.
They commonly have a free cover limit. Employees whose benefits fall within this limit may not need to provide individual medical evidence when they join the scheme, provided the scheme’s eligibility conditions are met.
Medical underwriting may be required when someone’s benefit exceeds the free cover limit or when otherwise required by the insurer.
For more on individual applications, see what to expect during income protection underwriting.
Can a company choose which employees to cover?
With executive income protection, the company can arrange an individual policy for a particular director or employee.
Group schemes are normally set up using defined eligibility rules.
For example, membership might be based on employment status, seniority, or another clearly defined category, rather than on the employer choosing individual employees as and when it wishes.
The rules will depend on the scheme and insurer.
How much income can be covered?
Both types of cover replace part of an employee’s earnings rather than their full income. With executive income protection, some insurers can include qualifying dividends as well as PAYE salary, which can be particularly useful for owner-directors who take much of their income as dividends.
See salary and dividends for income protection for more on director remuneration.
Do both have a deferred period?
Income protection only starts paying once the agreed deferred period has passed. Until then, the employer may need to fund any sick pay itself. The length of the deferred period varies between policies and schemes.
Our income protection deferred periods guide covers how this works.
How long can benefits be paid?
Both executive and group income protection can be arranged with limits on how long an individual claim will be paid.
Some cover pays for a fixed period, such as one, two or five years. Other arrangements can potentially provide benefits for much longer, subject to the policy or scheme terms.
The longer the potential claim period, the greater the protection against a long-term illness or injury.
See how long income protection can pay you for.
What happens if you leave the company?
Executive income protection is usually owned by the company, so leaving the business may affect what happens to the policy.
Group income protection is linked to the employer’s scheme, so cover will normally end when the employee leaves or is no longer eligible. Some policies may provide other options when employment ends.
For executive policies, see what happens to executive income protection if you leave or close your company.
Which is better for a limited company director?
For an owner-director running a small limited company, executive income protection will usually be the more relevant option.
It allows the company to arrange cover for an individual director without needing to establish an employee group scheme.
Group income protection is more suited to businesses that want to provide cover for a wider group of employees. As a company grows, a group scheme may make more sense than arranging separate executive policies for several members of staff.
Can a company have executive and group income protection?
A company can have a group scheme for its wider workforce while using separate executive policies for particular directors or senior employees.
Where someone has more than one source of income protection, the total amount they can receive will normally be limited by their earnings.
Our guide to having more than one income protection policy looks at this issue.
Choosing between executive and group cover
The size and structure of the company will usually point towards the most suitable type of cover.
Executive income protection works well where a business wants to insure an individual director or employee. Group income protection is designed for employers providing cover to a wider group of staff.
Whichever route is used, compare the amount of income covered, deferred period, benefit period and definition of incapacity rather than looking at the premium alone.