What is executive income protection?
Executive income protection (EIP) is an income protection policy set up and funded by an employer (typically a limited company) for the benefit of a director or employee. It is the business equivalent of personal income protection — but paid for through the company, often with significant tax advantages.
How does executive income protection work?
The company takes out an EIP policy on a director or employee. If that person becomes unable to work due to illness or injury, the policy pays a monthly benefit to the company — which then passes it on as salary, allowing the employee to continue receiving income while unable to work.
Tax advantages of executive income protection
- Corporation tax deductible: Premiums paid by the company are typically treated as a business expense
- More affordable than personal IP: The tax efficiency means the real cost to the director is significantly lower
- Higher benefit levels: EIP can cover up to 80% of income plus employer NI contributions and pension contributions — more than standard personal IP
Who qualifies for executive income protection?
EIP is available to limited company directors, employees of companies, and some LLP members. It is not available to sole traders (personal IP is more appropriate). There must be a genuine employment relationship.
EIP alongside relevant life insurance
Many company directors combine relevant life insurance (for death) with executive income protection (for incapacity) — both funded through the company. Together, they provide comprehensive financial protection at maximum tax efficiency.
Frequently Asked Questions
Generally yes — EIP premiums paid by a company are treated as a business expense and are corporation tax deductible, subject to HMRC conditions. The benefit payments are treated as employment income when received.
EIP is set up and paid for by a company for an employee or director. Personal IP is taken out by an individual for themselves. The tax treatment and benefit structures differ.