Executive Income Protection
However, the main difference between the two is that Executive Income Protection is taken out and paid for by the business on behalf of the Director or employee. The benefit, following any claim, is then paid directly to the business who continues to pay the employee or Director through PAYE whilst they are unable to work.
This type of policy benefits both the employer, who can then afford to hire an interim replacement during any period of absence, as well as the employee, who continues to receive a regular income whilst they are off work. Best of all, the premiums are usually treated as an allowance business expense.
An Executive Income Protection policy can form part of an appealing employee benefits package designed to attract and retains high-quality employees but is also very popular with Contractors, Sole-Traders, Tradespeople and Directors of their own small limited company given the associated tax benefits and the need to protect their earnings in the event of injury or illness.
In terms of taxation, an Executive Income Protection policy is treated in a similar way to a Relevant Life policy. The payments are usually treated as an allowable business expense. The proceeds paid to the business are taxed as a trading receipt and the benefits paid to the employee via PAYE are normally classed as an allowance business expense. This makes Executive Income Protection a more tax-efficient way of arranging replacement income cover.
Executive Income Protection provides protection both pre and post-retirement. This is because the replacement income benefit is paid via PAYE, ensuring that the employee’s pension contributions continue to be paid.
Much like a personal policy, Executive Income Protection can be arranged to provide benefit up to the age of 70.