COMPANY FUNDED INCOME PROTECTION
Help the business support a key employee through long term illness
Executive income protection can allow a company to insure an eligible director or employee and use a valid claim payment to help continue remuneration and selected employment costs.
When an employee is too important to leave unsupported
A director or senior employee may rely on salary, dividends, pension contributions and benefits. If illness or injury prevents them from working, personal income protection may not reflect the complete remuneration package.
Executive income protection is arranged and paid for by the employer. After the deferred period and a valid claim, the insurer pays the company. The company can then use the money to continue eligible remuneration and associated costs under the policy and payroll rules.
The cover must be designed around current remuneration, employer sick pay, occupation, policy limits and the intended length of support. It should also be reviewed when salary, dividends, role or company status changes.
Why this matters
ABI members paid a record £209 million in individual income protection claims during 2025. Mental health conditions accounted for 19 per cent of payments and musculoskeletal conditions for 33 per cent.
What the policy may insure
- A proportion of salary or another eligible remuneration basis under the insurer's rules.
- Employer National Insurance contributions associated with continued salary.
- Employer pension contributions, where included and evidenced.
- Dividends in limited circumstances and under specific insurer rules, often connected to shareholding and company performance.
- A replacement employee cost option under some policies, subject to limits.
Designing the deferred period
The deferred period should reflect the company's contractual sick pay and cash reserves. If the company can continue full remuneration for three months, a matching or longer deferred period may reduce overlap and premium.
A split deferred period can sometimes reflect full and partial sick pay, subject to insurer options. The claim definition and return to work support should also be compared.
Company and employee tax position
The company may be able to treat premiums as a business expense, depending on purpose and circumstances. Claim proceeds paid to the company and salary paid to the employee can have different tax treatment. The accountant must confirm the intended payroll and corporation tax position.
Benefits are not automatically tax free. Company funded and personally funded income protection are taxed differently, so the intended treatment is confirmed before the policy is arranged.
A director's income is more than salary
Illustrative Scenario
A working director takes a modest salary, dividends and employer pension contributions. The company wants to support the director during long term illness without draining working capital. The adviser checks which parts of remuneration the insurer will recognise, aligns the deferred period with company sick pay and asks the accountant to confirm payroll and tax treatment.
What readers need to consider
- The employer owns the policy, pays the premium and receives the claim payment.
- The insurer's definition of eligible earnings may not include all dividends or benefits.
- The company must continue to exist and follow the policy and payroll rules during a claim.
- Occupation definitions, deferred periods, claim periods and exclusions vary.
- Tax treatment is not the same as personal income protection and must be confirmed by the accountant.
Frequently Asked Questions
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The insurer normally pays the employer. The employer then uses the payment in line with the policy purpose and payroll arrangements.
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Some insurers can include certain dividends when ownership, trading history and other conditions are met. The method and limits vary and require evidence.
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It should not be described that way. Salary or remuneration paid to the employee is normally processed through payroll and taxed accordingly. The accountant should confirm the position.
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Some policies offer an option for replacement employee costs. Availability, amount and claim conditions vary.
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The arrangement needs review. A new employer may be able to continue or replace cover, but there is no guarantee and new underwriting may be required.
You do not need to know which policy you need before speaking to us. Tell us what you are worried about protecting, and we will help you understand the options.
Discuss executive income protectionERG Finance provides protection advice from across the whole of the market.
This page provides general information and does not constitute personal advice. Eligibility, underwriting, exclusions, definitions, waiting periods, claim periods and premiums vary by insurer and policy. Cover normally ends if premiums are not maintained. We will explain the features, limitations and costs of any policy we recommend. Executive income protection is owned by and paid to the employer. Eligible remuneration and tax treatment vary. The company's accountant should confirm the payroll and tax position.