Executive income protection is a business income protection policy designed specifically for limited companies to protect directors and key employees. The business pays the premiums as a tax-deductible expense, and if an employee can't work due to illness or injury, the policy pays monthly benefits to the business which are then passed to the employee via PAYE. Cover up to 80% of salary including bonuses and benefits, with flexible deferral periods from 4-52 weeks.
By: Lorna Bailey Protection Expert Updated: 5th January 2026
Executive income protection is a business income protection policy, ideal for small to medium sized businesses who want to protect the income of their directors and key employees.
It can help to ease financial strain for an employee if they're unable to work due to illness or injury (this can include employed directors of their own limited company).
It does this by making monthly payments to the business, which can then be passed onto the employee (via PAYE) to help them cover living expenses.
Key distinction: Executive income protection is paid for by the business, while personal income protection is paid for by individuals. The business pays premiums as a tax-deductible expense, making it more tax-efficient for company directors.
As well as covering a salary, it's also possible to protect the following with an executive income protection policy:
Basic salary (up to 80% coverage)
Bonuses and commission
Employer pension contributions
National Insurance contributions
Benefits-in-kind (e.g., company car)
Private medical insurance premiums
Benefits are paid to the business first, then distributed to the employee through the normal PAYE system, meaning they are taxable as regular earnings.
Who needs executive income protection?
Executive income protection is specifically designed for employees of limited companies, particularly:
Company directors (including sole directors of their own limited company)
Key employees whose absence would significantly impact the business
Senior management team members
Specialist employees with unique skills
Business partners in a limited company structure
Executive income protection is particularly beneficial for:
Company directors who pay themselves a small salary with dividends - Executive cover can protect a higher income level than personal income protection would allow (since personal cover only protects salary, not dividends).
The policy must be taken out by the limited company, not the individual. The employee must be on the company payroll and receiving a regular salary through PAYE.
If you're self-employed as a sole trader or in a partnership, you would need personal income protection instead, as executive cover is only available to limited companies.
✓ Advantages
headingIdeal candidates
itemsDirectors of limited companies with significant incomeBusiness owners taking salary + dividendsKey employees with employer-sponsored coverThose in higher tax brackets (maximising tax efficiency)Companies wanting tax-deductible protection costs
✗ Disadvantages
headingLess suitable for
itemsSole traders or partnerships (need personal IP instead)Employees of non-limited companiesThose with minimal business incomeIndividuals who prefer tax-free benefitsCompanies unable to afford premium costs
How does executive income protection work?
Understanding how executive income protection operates is essential for determining if it's the right choice for your business.
Application and underwriting: The limited company applies for cover on behalf of the employee. Medical underwriting is required - the employee answers health questions and may need a medical examination. The business chooses the benefit amount (typically up to 80% of salary plus benefits).
Premium payments: The business pays monthly or annual premiums. Premiums are treated as a tax-deductible business expense. Premiums don't count as a benefit-in-kind for the employee (no tax on receiving the coverage).
Making a claim: If the employee becomes unable to work due to illness or injury, they notify the insurer. Medical evidence from the employee's doctor is required. The claim must meet the policy definition of incapacity (usually 'own occupation').
Deferral period: The employee must be unable to work for the full deferral period before payments begin. Common deferral periods: 4, 8, 13, 26, or 52 weeks. Longer deferral periods = lower premiums.
Benefit payments: After the deferral period, the insurer pays monthly benefits to the business. The business then pays the employee through normal PAYE. Income tax and National Insurance are deducted as usual.
Benefit period: Payments continue until: the employee returns to work, the policy term ends, or the employee reaches retirement age. Benefit periods can be short-term (1-5 years) or long-term (until retirement).
Important: Unlike personal income protection where benefits are tax-free, executive income protection benefits are taxable earnings because they're paid through PAYE. However, the overall tax efficiency for directors is often better due to deductible premiums.
The amount you can claim is calculated at the time of claim, not when you take out the policy. You'll need to provide evidence of income (payslips, P60s, accounts) when claiming.
Maximum benefit limits typically range from £100,000 to £250,000 per year, depending on the insurer. Some insurers have no upper limit but restrict coverage to a percentage of proven income.
Tax benefits of executive income protection
One of the main advantages of executive income protection over personal cover is the tax treatment, particularly for company directors.
Tax Treatment Comparison
Example tax savings for executive income protection:
A director paying £100/month premiums saves £19-£25 in corporation tax (at 19-25% rates). This reduces the effective cost to £75-£81/month. For a 40% higher-rate taxpayer buying personal cover, the same protection costs £100/month from post-tax income (effective cost £167 before tax).
While the benefits are taxable under executive cover, the overall tax position is typically more favorable for directors because:
Premium costs are reduced by corporation tax relief
The business pays employer's NI (13.8%), but this is also tax-deductible
Dividends (which are not protected by personal IP) can be protected
Higher benefit amounts are available (up to 80% vs 50-70% for personal)
No benefit-in-kind tax charge for having the cover
It's worth noting that HMRC rules require executive income protection to be available to all employees on similar terms, not just directors. However, in practice, small companies with only director-employees can restrict cover to directors only.
Executive vs personal income protection
Choosing between executive and personal income protection depends on your business structure, tax position, and personal circumstances.
✓ Advantages
headingAdvantages
itemsPremiums tax-deductible for business (corporation tax relief)Can cover higher amounts (up to 80% of total package)Can protect dividends, bonuses, and benefits-in-kindNo benefit-in-kind tax charge for having the coverBetter overall tax efficiency for directorsBusiness expense (not personal cost)
✗ Disadvantages
headingDisadvantages
itemsBenefits are taxable (income tax + NI deducted)Only available to limited company employeesBusiness must pay premiums (cash flow consideration)Benefits linked to proven income at claim timePolicy owned by business (not portable if you leave)May need to offer to all employees on similar terms
✓ Advantages
headingAdvantages
itemsBenefits completely tax-freeYou own the policy (portable between jobs)Available to sole traders and partnershipsSimpler application processFixed benefit amount (not linked to earnings at claim)No employer NI considerations
✗ Disadvantages
headingDisadvantages
itemsPremiums paid from post-tax income (no tax relief)Lower coverage limits (typically 50-70% of salary only)Cannot protect dividends or benefits-in-kindMore expensive effective cost for higher rate taxpayersPersonal expense (affects take-home income)No corporation tax benefit
Which should you choose? Here's a quick decision guide:
Which Type of Cover is Right for You?
Many directors choose executive income protection for its tax efficiency and ability to protect their full income package including dividends. However, if you value tax-free benefits and policy portability, personal cover may be better despite the higher effective cost.
Some directors choose to have both types of cover - a smaller personal policy for guaranteed tax-free income, plus executive cover for higher protection levels. This combines the benefits of both approaches.
Executive income protection is a business income protection policy designed for company directors and key employees. The business pays the premiums (as a tax-deductible expense), and if the employee cannot work due to illness or injury, the policy pays monthly benefits to the business, which are then passed to the employee via PAYE.
Who can be covered by executive income protection?
Any employee of a limited company can be covered, including company directors. It's particularly suited for SMEs wanting to protect directors or key employees whose absence would significantly impact the business. The employee must be on the company payroll.
What's the difference between executive and personal income protection?
Executive income protection is paid for by the business (tax-deductible), covers employees including directors, and benefits are paid via PAYE (taxable). Personal income protection is paid by individuals (from taxed income), covers self-employed/personal needs, and benefits are tax-free. Executive cover typically offers better tax efficiency for limited company directors.
How much income can be protected?
Typically up to 80% of gross salary, including bonuses, pension contributions, and benefits-in-kind (like company cars). There are usually maximum benefit limits (e.g., £250,000 per year), and the policy can cover salary, employer pension contributions, and National Insurance contributions.
What's the deferral period?
The deferral (or waiting) period is how long you must be unable to work before benefits start. Common periods are 4, 13, 26, or 52 weeks. Longer deferral periods result in lower premiums. Most businesses choose 13 or 26 weeks to align with statutory sick pay periods.
Is executive income protection tax-deductible?
Yes, premiums paid by the business are fully tax-deductible as a business expense. However, benefits paid to the employee are subject to income tax and National Insurance (via PAYE) as they're treated as earnings. This makes executive cover more tax-efficient than personal income protection for company directors.
Get Your Free Quote
Answer a few simple questions to get your instant quote
Thank You!
Your quote request has been submitted successfully.
Our expert team will review your details and contact you within 24 hours with personalised life insurance quotes from our trusted partner providers.
Free & no obligation
Instant quote in 60 seconds
Compare UK's best providers
Protect Your Business and Employees Today
Get tax-efficient executive income protection for your directors and key employees. Free quotes from leading UK insurers.
