Executive income protection is an income protection policy that a business takes out, owns and pays for on a named employee or director. How it works in practice: if that person cannot work through illness or injury and the claim is valid, the insurer pays the business a monthly benefit, and the business passes it on as sick pay through payroll.

Curious how an insurer would see one named director or employee? Complete the quote form on this page; one FCA-authorised adviser firm will afterwards phone to talk it through, and nothing is charged.

How does executive income protection work?

Legal & General's Technical Guide (QGI16435, December 2024), written for advisers, sets it against the personal version: "Whilst a traditional income protection plan is taken out by the life insured on their own life, Executive Income Protection offers clients who run their own businesses the alternative of being able to arrange cover for either themselves or an individual employee through the business." In that arrangement "the business is the policy holder who is responsible for paying the premiums and the employee is the life insured." HMRC's Insurance Policyholder Taxation Manual (page dated 1 December 2022) says of sick-pay cover bought by an employer: "the employer is the insured, because the employer holds the contract with the insurer."

On a claim, "benefits are paid to the employer. These are then used by the employer to fund ongoing sick pay through PAYE, subject to the usual deductions for: Income Tax, employee National Insurance, and employee contributions to a workplace pension." So the sequence is:

  1. The business applies, giving the employee's health and earnings details.
  2. If the employee cannot work, a deferred period runs first. Legal & General's policy summary (QGI16492, April 2025, from its adviser site) says the business must keep paying premiums during it.
  3. After a valid claim, the insurer pays the business a monthly benefit; at Legal & General, premiums stop while it is paid.
  4. The business pays the employee through payroll.

The benefit is worked out from earnings, not chosen freely. In that summary it "is based on the pre-tax earnings that the employee receives during the 12 month period immediately prior to incapacity", including salary, overtime, bonuses and the value of any P11D benefits. If the employee has continuing income while claiming, "we will reduce the monthly benefit that we will pay", and a claim ends if "the employee no longer works for the business or the business ceases to trade."

Who can be covered, and how does it differ from other business cover?

The person covered must be an employee of the business that owns the policy. LV='s product profile (39333-2022, October 2023, marked "For UK financial adviser use only") says "The relationship between the policy owner and the person insured must be that of employer and employee." Legal & General's guide adds that equity partners, LLP members and sole traders, as owners of their business, are not eligible to be covered, though a sole trader can be the employer insuring an employee. For a shareholding director, Legal & General's summary says it can take into account dividends "which will cease in the event of their incapacity". Income protection for the self-employed is a separate route.

Nearby products are easily confused with it:

  • Personal income protection pays the person directly and is explained in what income protection is. Legal & General's guide frames the choice as cover through the business or "taking a higher income from the business" to pay for a personal policy; executive or personal income protection weighs the two.
  • Group income protection covers a workforce. The same guide says executive cover could suit a business that "Does not have a sufficient number of employees to offer a group income protection scheme"; income protection for business owners sets out how company-provided cover works, within our critical illness and income guides.
  • Key person insurance pays the business for lost profit; see what key person insurance is for.
  • Relevant life insurance is company-paid life cover for the employee's family, in what relevant life insurance is.

What do Legal & General, LV= and Royal London say about their terms?

These are adviser documents, so what a given business is offered can differ. The LV= profile is the October 2023 print, read from an archive copy; a newer one may exist. Royal London's plan is called Business Menu Plan Income Protection, and its adviser page describes protection for "selected employees".

Insurer and documentWait before paymentBenefit limitAges
Legal & General, policy summary QGI16492 (April 2025) and technical guide QGI16435 (December 2024)Deferred period of 4, 8, 13, 26 or 52 weeksUp to 80% of earnings, to £300,000 a year (£25,000 a month); increasing cover £210,000 (£17,500 a month) at outsetTaken out from the employee's 18th birthday up to their 60th; must end after their 50th birthday but before their 70th or planned retirement date, whichever is earlier
LV=, product profile 39333-2022 (October 2023)Waiting period of 1, 2, 3, 6 or 12 months (1 and 2 months not available for some occupations)Up to 80% of earnings, to £300,000 a year level or £225,000 a year inflation linkedPerson insured aged 17 to 59 at application; minimum term 5 years; must end before 70
Royal London, Business Menu Plan Income Protection, adviser-only web pages (undated, read October 2026)Deferred period of 4, 8, 13, 26 or 52 weeksUp to 65% of the first £60,000 of pre-incapacity earnings, plus 50% of the remainder, up to £250,000 a yearCover starts from 18 to 59 attained; ends at 70 attained at most

Beyond the table, two points recur. Legal & General's summary offers additional cover for the employer's National Insurance and pension contributions, "Optional - must be chosen at the start of the policy for an additional cost", and LV= describes the same option. LV= also has a budget version in which "the maximum claim period per claim is 12 or 24 months".

LV= says it believes the product "should only be sold on an advised basis, face to face or over the phone".

How is executive income protection taxed?

This is what HMRC and the insurers publish, not tax advice. Rules can change, and a company's accountant confirms how they apply.

The benefit. HMRC's Employment Income Manual (page dated 1 December 2022) on sick pay funded by the employer says "The employer may provide the funds for sick pay directly or through a trust or insurance policy. Whichever method is used, the sums paid to employees are taxable as earnings within Section 62 or Section 221 ITEPA 2003." The employee therefore pays tax on it through PAYE, unlike a personal policy's benefit, which Legal & General calls "tax free". For the company, the guide says the benefit "will in most cases be treated as a trading receipt" but "should also be treated as a trading expense when it is used to fund sick pay for the employee resulting in a neutral tax position".

The premiums. HMRC's Business Income Manual (page dated 1 April 2016) deals with an employer's policy against loss of profits from an employee's or director's sickness, accident or injury. It allows the premiums where its conditions are met, the first being that the sole purpose is a trade purpose of meeting lost trading income rather than a capital loss. Whether that covers sick-pay funding for a named person is for the accountant to decide.

Two of the insurers add a condition about ownership. Legal & General's guide says that where the employee "doesn't have a financial interest in the business and premiums are expended 'wholly and exclusively' for the purposes of the business, premiums should qualify as a business expense", but the business must "confirm with Her Majesty's Revenue and Customs (HMRC)" for employees who do. LV= says premiums "will only usually qualify" in the first case and that "this is not guaranteed". Legal & General adds that the premiums "should not be treated as a P11D expense for the employee". Deductibility is covered in is executive income protection tax deductible?, the benefit in are income protection benefits taxable? and why personal premiums get no relief in life insurance tax relief.

What does executive income protection cost?

This page gives no market price. What it can show is one insurer's own example. Legal & General's technical guide (December 2024) sets an annual premium of £1,777, paid by the employer, beside a maximum benefit of £80,000; the example also includes additional cover for employer National Insurance and employer pension contributions. Its stated assumptions: "male, age next birthday 35.5, retiring at age 60, annual gross earnings of £100,000 occupation class 1, non-smoker, 8 week deferred period, providing own occupation cover. This example is fictitious and provided for illustration purposes only. Actual premiums will depend on individual circumstances. As with all insurance policies, terms and conditions apply." It is Legal & General's illustration, not what any employer will pay.

The documents point to what moves the price. Additional cover for employer National Insurance and pension costs is an extra cost at Legal & General, whose increasing policy has premiums that rise by the change in the Retail Prices Index multiplied by 1.5, up to 15% a year. LV= says its premium "includes a fee, which is a fixed monthly amount" for administration, and describes its budget version as "aimed at those clients looking for a lower premium". The employee's age, occupation, health and smoking, the amount covered and the deferred period usually affect it too; how much income protection costs and the deferred period go further.

Actual figures depend on the employee's details, which an FCA-authorised broker can collect after you submit the quote form here. Comparing income protection plans explains what to look at.

Frequently asked questions

What is the maximum age for executive income protection?

It is set by insurer. Legal & General's policy must end before the employee's 70th birthday or planned retirement date, whichever is earlier, and can start up to their 60th birthday; LV='s must end before age 70, for a person insured aged 17 to 59; Royal London's ends at 70 attained at most, with 59 attained the latest start.

Is executive income protection tax-free?

Not for the employee. HMRC's manual says sums paid to employees as sick pay are "taxable as earnings", so Income Tax and National Insurance are deducted through PAYE.

Can a sole trader have executive income protection?

Legal & General's guide says sole traders, as owners of their business, are not eligible to be covered, and LV='s profile lists an employer that is a sole trader or self-employed among those the product does not meet. Under Legal & General's terms a sole trader can still be the employer. See income protection for the self-employed for the owner's own options.

Is an executive protection policy the same as group life cover?

No. Executive income protection replaces pay when a named employee cannot work through illness or injury, and LV= states its policy does not pay if the person insured dies. Group life cover for staff is a death benefit; see group life assurance.

Can the cover be increased later?

Legal & General's summary lets the business apply to increase the monthly benefit without further medical information when the employee's earnings rise through a change of employment or promotion, or "on every third policy anniversary date", subject to eligibility criteria in the policy booklet.

Weighing up executive cover for your company? Submitting the quote form on this page arranges a chat with an adviser who holds FCA authorisation; it carries no fee.

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