Jargon Buster - Definition of Executive Income Protection

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Executive Income Protection

is an Income Protection policy that is available solely for company directors of limited companies. The policy works in the same way as an individual income protection policy whereby a monthly income is paid out if the life assured is unable to work due to accident and sickness. The difference with an Executive Income Protection Policy is that it is set up on a 'Life of Another' basis whereby the company pays the premiums and insures the director. As the premiums are not classed as a P11D benefit (benefit in kind), then the company can get tax relief on them, thus saving the director money.

Any claim on an Executive Income Protection is paid to the company instead of the director, the director can then pay this out to themselves as income. As this payment would be classed as a salary it will be taxable, therefore the director can cover 75% of their income instead of the normal 65%. Dividends can be classed as income so long as they will stop in the event of a claim.

Please note that all definitions are intended for general guidance only. For official and current definitions you should always double check your policy wording.

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