Who is eligible to take out executive income protection?
Executive income protection is mainly designed for directors and employees of limited companies. The company takes out the policy, pays the premiums and receives the benefit if the insured person is unable to work.
It can be particularly useful for owner-directors who take a mixture of salary and dividends from their company.
Who is executive income protection designed for?
Executive income protection is generally available to employees of a business, including directors who are also employed by their own limited company.
This means it can potentially be used for:
- Limited company directors.
- Owner-directors and shareholders who work for the company.
- Employees the company wants to cover.
- Contractors and consultants who trade through their own limited companies.
The company normally owns the policy rather than the insured individual.
For more information on how this arrangement works, read our main guide to income protection for limited company directors.
Can a limited company director take out executive income protection?
Absolutely. In fact, owner-directors are one of the main groups who can benefit most from executive income protection
A typical small company director may take a relatively modest PAYE salary and receive the rest of their income as dividends.
Depending on the insurer and the circumstances, qualifying dividends may be taken into account when calculating the amount of cover. This can make executive cover particularly relevant to directors whose salaries alone do not reflect the income they receive from their companies.
For more information on how your remuneration can affect cover, read our guide to salary vs dividends for income protection.
Can a one-person limited company take out cover?
Yes. You don’t need to run a large company or employ other people.
A company with a single director and employee can potentially arrange executive income protection for that person. This is common among consultants, contractors and other professionals who provide their services through their own limited companies.
For a one-person company, being unable to work can create two problems at once: the director loses the ability to earn, and the company may lose most or all of its trading income.
Executive income protection is designed to protect the director’s income rather than compensate the company for lost profits.
For more information on the difference, read our comparison of executive income protection vs key person insurance.
Can contractors take out executive income protection?
Yes, if they operate through a limited company and meet the insurer’s requirements.
The contractor’s company can take out the policy and pay the premiums, with the contractor insured as a director or employee.
Insurers will still consider factors such as occupation, earnings, age and medical history before offering cover.
For more information, read our guide to income protection for limited company contractors.
Can husband and wife directors both be covered?
Yes. If you both work for the company, it may be possible to have a separate executive income protection policy for each director.
Cover is based on each person’s earnings and the amount and type of work they do for the company, rather than simply how the shares are split.
This can be important in a 50:50 company where dividends are shared equally, but one spouse works substantially more hours or generates more of the company’s income.
For more information, read our guide to executive income protection for husband and wife directors.
Can employees who aren’t directors be covered?
Yes. Executive income protection isn’t restricted to company directors.
A company can potentially arrange cover for an employee where it wants to provide longer-term sick pay protection. The employee does not need to own shares in the business.
As with director cover, the company owns and pays for the policy and receives the benefit following a successful claim.
Can sole traders take out executive income protection?
Executive income protection is not normally the appropriate arrangement for a sole trader.
A sole trader and their business are not separate legal entities in the same way that a director and limited company are.
Sole traders can still take out income protection, but this would normally be personal income protection rather than a company-owned executive policy. The same distinction can apply to other self-employed people who do not operate through a limited company.
What if you already have personal income protection?
Having an existing personal policy does not necessarily prevent you from taking out executive income protection.
However, insurers place limits on the amount of income that can be protected. Existing income protection may therefore be taken into account when determining how much additional cover is available.
Don’t cancel an existing policy until you know what replacement cover has been accepted and on what terms.
For more information on the differences between the two types of policy, read our guide to executive vs personal income protection.
Does your occupation affect eligibility?
Yes. The insurer will want to know what you actually do for a living, not just your job title.
An office-based company director presents a different risk from a director who spends most of the week performing physical work.
Your occupation can affect the premium, the terms offered and the definition used to assess whether you are unable to work. Some occupations may also have restrictions on the cover available.
For more information on how insurers assess your ability to work, read our guide to own occupation executive income protection.
Do you need to be in good health?
No. You don’t necessarily need a perfect medical history to take out executive income protection.
When you apply, the insurer will ask questions about your health and may ask for additional medical information.
Depending on your circumstances, you may be offered normal terms, a higher premium or cover with an exclusion. In some cases, an application may be postponed or declined.
For more information on how health can affect an application, read our guides to executive income protection and pre-existing medical conditions and income protection underwriting.
Does your age affect eligibility?
Yes. Insurers have minimum and maximum ages for taking out cover and limits on how old you can be when the policy ends.
Being older does not necessarily mean you can’t get executive income protection, but the options available can become more restricted, and premiums will normally be higher.
For more information on entry and expiry ages, read our guide to executive income protection age limits.
How much income do you need to earn?
There isn’t a single earnings figure that applies across every executive income protection policy.
Your earnings matter because they help determine how much benefit you can insure. Insurers normally set a maximum proportion of earnings that can be covered, together with an overall maximum benefit.
For directors, the calculation can be more complicated because salary may account for only part of their remuneration.
For more information on choosing a benefit level, read our guide to how much executive income protection you need.
Check your eligibility before applying
Most owner-directors will need to provide details of their income, occupation, age and medical history when applying for cover.
What you can insure, and how much it costs, will depend on those details and the insurer you apply to.
A specialist IFA can answer any questions you have, check the cover available and compare quotes from leading providers.