Running a business comes with many challenges, and ensuring financial stability during unexpected times is essential.
Executive income protection provides a reliable solution for company directors and key employees if illness or injury prevents them from working.
Unlike personal income protection, this policy is arranged and funded by the business, ensuring financial support for both the company and its staff. Covering up to 75% of income, or a maximum of €262,500 per year, executive income protection helps maintain operations and provides crucial financial support.
In this blog, we’ll explore how much executive income protection covers, how it works, and why it’s a valuable option for businesses in Ireland.
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Executive income protection is an asset for businesses, offering financial support when key individuals are unable to work due to illness or injury. To understand its importance, let’s take a closer look at how it works and how it differs from personal income protection.
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This type of policy is set up and paid for by the company. If a director or key employee becomes too ill or injured to work, the policy provides regular income to the business after an agreed-upon deferred period. The company, in turn, pays the affected employee or director their salary, deducting necessary taxes like income tax, PRSI, and USC. This ensures that personal finances remain stable while the business continues to operate effectively.
Difference Between Executive and Personal Income Protection
While personal income protection is a policy taken out by individuals, executive income protection is purchased and managed by the business.
The claim benefit is paid directly to the company, which then uses it to compensate the affected individual. This unique structure not only helps businesses protect their cash flow but also secures the financial well-being of employees in times of need.
Understanding the level of cover provided by executive income protection is vital for both businesses and employees. This ensures that everyone involved knows what to expect in terms of financial support. Let’s discuss the specifics of the cover amount and how it is structured.
Covering Up to 75% of Income, Up to €262,500 Per Year
The policy allows you to cover up to 75% of your income or that of a key employee, with a maximum limit of €262,500 annually. This amount helps maintain financial stability during difficult times, ensuring that the individual’s salary is accounted for, even if they are unable to work.
Waiting Period and Payment Structure
Payments typically begin after a waiting or deferred period. This would be agreed when the policy is set up. Deferred periods for executive income protection are usually: 4, 8, 13, 26 or 52 weeks. The longer the deferment the cheaper the premium.
Once the claim is approved, the company receives the benefit and can it to pay the affected director or employee. This income is subject to deductions for income tax, PRSI, and USC, ensuring compliance with tax regulations while providing net income to the individual.
Executive income protection provides financial stability for businesses when directors or key employees are unable to work. To fully understand its process and benefits, let’s look at how the policy functions and how the payments are managed.
How the Policy Functions?
Executive income protection is taken out and paid for by the company. If a claim is made, the policy provides a regular income to the business, which then uses it to pay the affected employee or director. This ensures that salaries are maintained without placing additional financial pressure on the company’s funds.
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How much does income protection cost?
The cost of income protection insurance varies based on several factors, including age, occupation, income, and the level of cover required.
If you need to get detailed quotes for income protection call us now and we can give you some different options.
How Payments Are Managed?
Once the income is received by the company, it is subject to standard deductions such as income tax, PRSI, and USC. The company then pays the net income to the affected individual. Payments can continue until the employee is able to return to work or until the policy term ends if they remain unable to work.
Executive income protection offers multiple advantages for businesses and their employees, ensuring stability during challenging times. Let’s explore how it helps protect incomes, manage costs, and improve employee benefits.
Protecting the Income of Directors and Key Employees
Company directors and key employees play a vital role in the success of any business. Executive income protection covers up to 75% of their income, capped at €262,500 per year, ensuring they are financially supported if illness or injury prevents them from working. This support helps businesses maintain operational stability while allowing directors or employees to sustain their lifestyle without additional financial stress.
Managing the Cost of Sick Pay to the Business
When a director or key employee cannot work, the business may face additional financial stress. With executive income protection, the policy covers up to 75% of their salary, reducing the burden on company funds. This ensures that sick pay obligations are met while leaving the company’s resources available for ongoing operations or to hire temporary replacements.
Boosting Recruitment and Employee Retention
Generous sick pay benefits make businesses more attractive to potential employees and help retain key team members. Offering executive income protection highlights the company’s commitment to employee welfare. This not only strengthens staff morale but also ensures the continued presence of skilled professionals upon whom the company depends.
Ensuring Pension Contributions
Executive income protection can also cover pension contributions of up to 35% of an individual’s salary, up to €50,000. This ensures that even during extended absences, directors or employees can maintain their pension benefits without interruption. It provides long-term security for both the individual and the company.
Partial Payments
If your employee returns to work with reduced earnings, they may qualify for a partial benefit. Our goal is to support their transition back to work, even in a limited capacity. If their illness or injury prevents them from resuming full-time duties and they can only work part-time or take on a lower-paying role, they may be eligible for a proportionate payment to help offset their lost earnings.
Taking Advantage of Tax Incentives
Premiums paid for executive income protection are allowable against corporation tax, making this policy a cost-effective option for businesses. Additionally, under current Benefit in Kind rules, these premiums are not taxable for employees, further increasing the financial feasibility of the policy for companies.
Executive income protection is an essential protection for businesses, providing financial security for directors and key employees during unexpected illnesses or injuries. With coverage of up to 75% of income, capped at €262,500 annually, it ensures continuity in operations and stability for employees and their families.
Additional benefits like pension contribution protection, tax incentives, and improved employee retention make it a smart choice for Irish businesses.
If you’re considering executive income protection, Greenway Financial can guide you through the process. Contact our team today for expert advice and customised solutions to protect your business and its people.
What does executive income protection cover?
Executive income protection covers up to 75% of a director’s or key employee’s salary, capped at €262,500 per year. It ensures financial support if illness or injury prevents them from working, providing income for the business to pay affected individuals.
Who pays for executive income protection?
The company pays for executive income protection policies. When a claim is made, the benefit is paid to the business, which then uses it to pay the affected employee or director after deducting taxes like PRSI, USC, and income tax.
How long does executive income protection pay out?
Payments begin after an agreed-upon waiting period and can continue until the individual returns to work or until the policy term ends. This ensures ongoing financial stability for both the employee and the business.
Can executive income protection cover pension contributions?
Yes, you can protect up to 35% of salary, capped at €50,000, for pension contributions under an executive income protection plan. This allows pension contributions to continue even during periods of illness or injury.
Are there tax benefits for executive income protection?
Yes, the premiums paid by the business for executive income protection are allowable against corporation tax. Additionally, these premiums are not considered a taxable benefit for employees under current Benefit in Kind rules.
How is executive income protection different from personal income protection?
Unlike personal income protection, executive income protection is taken out and paid for by the company. The business receives the benefit in case of a claim, enabling it to pay affected employees while maintaining its operations.
