Sick Pay For Businesses | Executive Income Protection Insurance | Help

Introduction

Host: Hello everyone, and welcome to this special insurance episode of Let’s Talk Money and Mortgages.

Today, we’re here to talk about Executive Income Protection, which is an income protection plan that has several tax benefits — we’ll go through those in detail shortly.

During the pandemic, sick pay has been a major concern. Many people — including our clients — were unaware of how much sick pay they would receive from their employer.

Many business owners don’t have any such arrangement to fall back on if they become unwell.

Today, I have Suneth joining us again.

Suneth is one of the founding directors of the WIS Group of Companies. She is a trained accountant as well as an Independent Financial Adviser (IFA).

Q1: What is sick pay and how does it differ for employees and business owners?

Suneth: If you are a permanent employee, chances are that you have a sick pay arrangement with your employer.

This means that if, for any medical reasons, you are unable to work, your employer will continue paying your full salary until you return.

However, if you are a business owner running a consultancy business — for example, IT consultancy or management consultancy — and you’re unable to work, you will not receive payments from your client.

You might even face a situation where your contract is pulled, leading to a period during which your company isn’t generating income.

That, in turn, means you won’t be able to withdraw your monthly salary or dividends, which will have an impact on your savings.

Q2: What is Executive Income Protection?

Suneth: Executive Income Protection is an insurance product designed for small to medium-sized business owners and employees.

It protects you in scenarios where you’re unable to work due to a medical condition.

If you cannot work, the insurance company pays a monthly benefit.

This benefit is paid into the business, and the business can then use it to pay:

• Your salary
• Your dividends
• Employee salaries, until the person recovers and returns to work.

Q3: How does Executive Income Protection work?

Suneth: The business takes out an Executive Income Protection policy.

This means the employee’s income is now protected.

If the employee becomes injured or unwell and cannot work, the business makes a claim.

Once verified, the policy pays out a monthly benefit in line with the level of cover.

The business then uses that money to pay salaries and dividends.

When the employee is well and returns to work, the payments cease.

That’s essentially how Executive Income Protection works.

Q4: What earnings can be covered under this policy?

Suneth: The main earnings covered are:

• Employee salary
• Dividends (for company directors)
• P11D benefits, such as company car or private medical insurance
• Pension contributions made by the company

For family businesses, if your spouse is part of the company and draws a salary and dividends, their income can also be covered in the event of illness.

Q5: How much of your income can be covered?

Suneth: The general rule within the industry is that Executive Income Protection plans can cover up to 80% of an employee’s annual earnings, up to £300,000.

This is significantly higher than personal income protection plans, which typically cover up to 60% of annual income.

Example:

If you and your spouse each take a £50,000 salary and dividends per year, that’s a total of £100,000.

This policy can cover up to 80% — that’s £80,000 in total, or £40,000 each.

You may not need the full amount while sick, but 80% is the maximum available.

Q6: What is the term or duration of the policy?

Suneth: The policy can usually run until the employee’s 70th birthday.

This is similar to a Relevant Life Insurance plan, which can run up to age 75.

These limits generally align with the UK’s maximum retirement age.

The age limits can vary slightly based on the occupation — for example, driving-related or manual labour jobs may have different limits.

Q7: What is the proportionate benefit, and how does it work?

Suneth: One of the key benefits of Executive Income Protection is the proportionate benefit, which is often included as standard but not widely discussed.

This feature applies when an employee returns to work partially, but not at full capacity.

Instead of stopping payments completely, the policy continues to pay a proportionate benefit — based on the extent to which the employee has resumed work.

Payments then gradually stop once the person returns to full-time work.

This is a very useful feature, as it supports employees on their road to recovery.

Q8: How does Executive Income Protection work from a tax perspective?

Suneth: This policy is very similar to Relevant Life Insurance in terms of taxation.

The monthly premiums are tax-allowable business expenses, meaning the business can claim corporation tax relief at 19%.

There is no P11D benefit, so there is no personal income tax liability for the director or employee.

From a tax standpoint, it’s a very efficient and cost-effective protection plan — just like Relevant Life.

Q9: What are the main benefits of having Executive Income Protection?

Suneth: Executive Income Protection is a brilliant way to protect your income if you’re unable to work due to illness.

It also helps fund sick pay pots for your employees — making it both a valuable benefit and a great hiring tool.

Over the past 18 to 24 months, especially during the pandemic, we’ve seen a growing need for businesses to have sick pay benefits in place.

Q10: How can someone get advice or more information?

Suneth: If you have any questions about:

• Executive Income Protection
• Business Loan Protection (last week’s episode)
• Relevant Life Insurance

You can contact us at WIS Business Protection.

📞 Call us: 0203 911 9968

🌐 Visit us: www.wisbusinessprotection.co.uk

We’ll be happy to answer your questions and help you explore the best business insurance options.

✅ In Summary:

Executive Income Protection provides a tax-efficient, comprehensive safety net for business owners and employees — protecting salaries, dividends, and benefits when illness prevents work, while offering businesses financial stability.