Executive Income Protection: taking the financial strain out of employee absence
Introducing the benefits of Executive Income Protection
Have your business clients considered how they or their employees will maintain their lifestyles, if sickness or illness stopped them working? Legal and General’s Executive Income Protection differs from a personal income protection policy as it can cover more than just the income, it contains options to cover employer pension and National Insurance contributions at an additional cost.
The potential impact of losing your income due to sickness or illness, should be part of any financial review, whether for protecting a mortgage or full financial advice. So - why is it often overlooked?
Research undertaken by Mintel/Lightspeed in their 2020 Income Protection report indicates that over 90% of the UK work force surveyed does not have their income protected. This may possibly be down to a basic lack of awareness that protecting income is even possible.
It’s not all bad news though. Due to the efforts of providers to simplify their products and to make them more affordable, advisers have renewed their drive to explain the importance of protecting income. Swiss RE’s ‘Health and Term Watch 2020 Report’ shows that in the last two years, the income protection market has shown accelerated growth of over 20% per year.
New Executive Income Protection plan
On the back of this increased demand, Legal & General have launched a brand-new Executive Income Protection plan.
A growing number of small businesses and business owners want to offer employees enhanced sick pay. It is also an appealing option for self-employed contractors and freelancers. Executive Income Protection is similar to personal income protection in that it is written on an individual basis on the life of the employee - the difference is, that the business owns the policy.
Benefits from tax efficiency through to higher levels of cover
An advantage of Executive Income Protection over Personal Income Protection is it’s tax efficiency. Typically, HMRC allows premiums to be treated as an allowable business expense, with Corporation Tax relief available and no additional income tax or National Insurance to pay. The benefits from the policy are paid tax free to the business and taxed as a trading receipt. The business then pays the employee in the form of salary or dividends.
Compared to personal income protection, Executive Income Protection can cover higher earnings of up to £300,000 per annum, including dividends and P11D benefits. The maximum percentage of earning that can be covered is 80% of gross earnings, versus personal income protection that typically covers 55-65%. Unique to Executive Income Protection is the feature where the employer can also cover its National Insurance and employer pension contributions. This additional cover can be chosen at outset for an additional cost.
Tailored benefits and more options for business clients
Each policy is tailored to the individual employee, with deferred periods ranging from 4 to 52 weeks and cover can be in place to age 70. Benefit payment periods can range from full cover for the duration of the policy or you can select either 1 or 2 years limited benefit payment periods at outset. When a limited benefit payment period is combined with a longer deferred period the premiums can be greatly reduced, helping to achieve the right balance of benefit and cost for each business.
Legal & General believe that by offering advisers the option of an Executive Income Protection plan, they can give their business clients the solutions they need. Providing options of both a Personal and an Executive Income Protection plan means better and more tailored advice for clients, which should always be encouraged.