Quick verdict on Executive Income Protection

Most directors who take a low salary and pay themselves the rest in dividends are dramatically under-protected by personal income protection — because personal IP can only insure PAYE salary. EIP closes that gap. Below is the short version of what we tell directors when they call us about it.

If any of the four points above made you stop and think "that applies to me", an EIP quote is worth running. The rest of this guide explains exactly how the policy is built, what HMRC expects, and how the benefit cap is calculated in practice.

How EIP differs from personal and group cover

There are three flavours of long-term sickness cover available to UK directors. Choosing between them is largely a question of who pays the premium, who owns the contract, and how the benefit is taxed when it eventually pays out.

Personal IP vs Executive IP vs Group IP at a glance

The two pieces of that table directors normally focus on are the premium tax line and the income types line. Personal IP is paid from money you've already been taxed on, and it can only insure your salary — so a director on a £12,570 salary plus £40,000 of dividends cannot insure the dividend portion at all. EIP can. That is usually the deciding factor.

How executive income protection actually works

EIP is written on a 'life of another' basis — the company is the policyholder and the director or key employee is the life assured. Mechanics are stricter than a personal policy because there are two parties involved and HMRC expects evidence at both ends.

1. Application from the company: The limited company is named as proposer. The director or employee being insured signs the application as the life assured and completes medical disclosure. The insurer typically asks to see a recent set of company accounts and the employee's payroll evidence.
2. Underwriting on the individual: Medical underwriting follows a normal income protection path — health questionnaire first, then GP report, medical exam or specialist tests if the disclosure flags anything material. Occupation matters: insurers band roles into classes, and a director who works on site (e.g. construction owner-manager) is rated differently from a desk-based director.
3. Setting the deferred period: Choose how long the company will fund the role internally before the insurer starts paying — usually 4, 8, 13, 26 or 52 weeks. Longer deferred period means lower premium. Most owner-managed businesses pick 13 or 26 weeks because that's roughly how long the company can absorb the gap.
4. Premium leaves the company: Direct debit goes from the company bank account, not the individual's. This is essential — premiums paid from a personal account would normally lose their corporation tax treatment and risk being treated as a benefit-in-kind.
5. Claim notification and assessment: When the insured person stops work, the insurer is notified. Medical evidence is provided and the claim is assessed against the policy's definition of incapacity (almost always 'own occupation' on a director-level policy). Insurers also re-verify the insured person's pre-incapacity earnings at this stage.
6. Benefit pays to the company: Once the deferred period ends, monthly benefit lands in the company bank account. The company runs it through payroll exactly like salary — the employee receives net pay after PAYE and NI, the company gets a corporation tax deduction for the gross amount, and the insurer's payment offsets that cost on the P&L.
7. Benefit continues until end of claim or policy: Payments stop when the insured person returns to work, the chosen payment period ends (e.g. 2 or 5 years on a limited-payment policy), or the policy expires (commonly 65, 67 or 70). A short-term EIP can reduce premium materially; a full-term policy is the closer match if the director is the business.

Tax treatment — limited company vs personal IP

This is the section directors usually skip first and then come back to. The headline is simple: EIP premiums normally come out of pre-tax company profit, while personal IP premiums come out of post-tax personal income. Once you work the figures through both routes, the corporation tax saving and the dividend equivalent more than offset the income tax that lands on the benefit at claim time — for most directors.

Tax treatment side by side

The HMRC qualifying rules that keep EIP out of benefit-in-kind territory are not automatic. The policy must be a properly constituted employer-paid arrangement, the company must be the policyholder, and the benefit must be routed through PAYE — not paid direct to the individual. A broker who has placed EIP before will spot when a setup risks tripping that.

When EIP makes sense for limited company directors

Not every limited company director should have EIP. The policy carries some setup overhead and the benefit, when it pays, lands as taxable PAYE earnings — so for a small subset of directors a personal policy with tax-free benefit is genuinely the better answer. Below is how we sense-check fit on a first call.

• You are a director of a UK limited company drawing a low salary plus dividends
• Personal IP can only insure your PAYE salary, leaving the dividend portion exposed
• The company has stable retained profits or trading income to fund a monthly premium
• You expect to remain a director of this company for the foreseeable future
• You want a corporation tax deduction on the premium where one is available
• You are also considering covering one or two key employees on the same scheme

If you ticked four or more, EIP is almost certainly worth quoting. If you ticked one or zero, personal IP is probably the cleaner answer — call us and we'll quote that instead.

Several directors solve the trade-off by holding both: a smaller personal IP for guaranteed tax-free benefit alongside an EIP for the larger income replacement. It is not the cheapest answer, but it neutralises the downside risk on each side. A broker can model the dual structure on a single quote run.

What income components EIP can cover

Where personal IP looks at one number — your taxable salary or self-employed profit — EIP looks at the whole compensation package. That is the structural advantage of the policy and the main reason it exists at all.

• Basic gross salary running through PAYE
• Regular dividends paid to the director-shareholder
• Dividends paid to a spouse where structured as part of remuneration
• Bonuses and commission, where contractually documented
• Employer pension contributions (auto-enrolment and beyond)
• Employer National Insurance contributions
• Benefits-in-kind such as a company car or private medical premium

Insurers vary in which components they will allow into the cover and how strictly they document them. Aviva, LV=, Royal London, Vitality and Liverpool Victoria all write executive income protection in the UK market, and each has its own ceiling on how high a multiple of basic salary they will go to once dividends and pension contributions are added in. The insurer comparison section below covers the practical differences.

UK insurers offering executive income protection

EIP is a specialist line and not every insurer offering personal income protection also writes the executive variant. The mainstream market for UK limited company directors is broadly the following providers, each with their own underwriting appetite, deferred period options and benefit-component rules.

• Aviva — broad acceptance, level or index-linked cover, robust own-occupation definition
• LV= (Liverpool Victoria) — competitive on dividend inclusion, full and budget EIP variants
• Royal London — strong on rehabilitation support and back-to-work assistance
• Vitality — premium discounts via the Vitality programme, suitable for healthier director profiles
• Legal & General — wide deferred period choice and additional benefits like guaranteed insurability

Underwriting outcomes on EIP turn on age, occupation class, smoker status, declared medical history and the size of dividends already drawn — so the right answer for a 38-year-old desk-based founder is rarely the right answer for a 52-year-old trades director. Whole-of-market broking is how you find your specific best price.

Underwriting appetite — how UK EIP insurers tend to differ

Setting up an EIP policy — practical considerations

Most of the value of EIP comes at the moment of claim, but most of the cost overruns come at the moment of setup. The points below are the ones we walk every new EIP client through before we submit an application.

1. Confirm the policy structure with your accountant first: Get written confirmation that the company will treat premiums as an allowable business expense and that benefit payments will run through PAYE. A short email from your accountant on this point is worth keeping with the policy documents.
2. Match the deferred period to the company's cash position: Owner-managers often pick 13 weeks because that is roughly how long the company can keep paying the director's salary out of cash reserves. Pick a deferred period the business can realistically self-fund — there is no point picking a 4-week deferred period if you can afford 26 weeks and want the lower premium.
3. Choose own-occupation as the definition of incapacity: Default for director-level EIP is own-occupation — pays if you cannot do your specific role. Avoid cheaper suited-occupation or any-occupation wording; the wrong definition is brutal at claim time for a director who cannot easily redeploy.
4. Decide between level, increasing and indexed benefit: Level benefit is cheapest; index-linked or RPI-rising benefit is more expensive but holds purchasing power over a multi-year claim. For directors planning to hold the policy 15-25 years, indexation is usually worth the extra premium.
5. Think about whether to extend cover to other employees: If you have one or two key employees, adding them to an EIP scheme rather than buying separate group cover is often cheaper. HMRC rules generally require comparable employees to be offered comparable terms — your broker can advise on the threshold below which this practically does not apply.
6. Document the trust position: Some EIP policies sit in trust to clarify that benefit is held by the company solely to pay through PAYE and is not a corporate asset. This is a small piece of paperwork but it can simplify the tax position materially.

Comparing executive income protection through LifePro

LifePro is an FCA-regulated UK insurance broker. We do not sell our own EIP product — we run quotes across a wide range of UK insurers and present the structure we think gives the best value for your specific company setup, occupation and disclosure. There is no fee to use the service, the advice is no-obligation, and the team is UK-based.

• Wide range of UK insurers writing executive income protection
• FCA-regulated, advised broker service
• Free, no-obligation quotes
• UK-based protection team — direct phone access, no overseas call centre
• Help with the application paperwork end to end, including company evidence

A typical EIP quote takes us 15-20 minutes on the phone — we need basic details on the company, the person being insured and the level of cover required. Indicative pricing can be ready the same day; firm quotes follow once underwriting receives the medical disclosure.