Kathryn Knowles

Hi, everyone, we are on season nine, Episode Five. And today, it’s just me again, and I’m gonna be taking you through some of the key points of executive income protection. This is the practical protection podcast.

00:29
So just like the other times, when I’ve been going through some of the more the product type things and stuff like how you’ll be advising on them what they can do, we’re not going to have a super long episode, it’s probably somewhere between 10-15 minutes, and just gives you a little bit of a quick deep dive into what these policies are. So with executive income protection, it is doing what we would expect it is protecting a person’s income, if they are ill and unable to work going forward. Whether or not that is that they can never work again, or whether or not that is for, you know, maybe they can return to work for a bit. And it could be that the insurer can do what’s known as like a partial payment. So with income protection, we can have it where somebody could have a phased return to work, then maybe go back from not doing the full hours they were doing but maybe half the hours they were doing it at which point, the insurer will sort of top up the amount to get them to that monthly benefit that they aren’t due to have whilst the employer is starting to repay them again. And with executive income protection, it is different to your personal income protection policies means quite a lot of bits about it really, that make it quite different. So it has to be an employer and employee relationship. So just kind of like with relevant life insurance, you know, it’s which is the same must be employee in relevant life insurance is like a thank you to the service, thank

Kathryn Knowles 01:51
you for your service to the company. It’s kind of the same with executive income protection, it’s saying thank you, for your service, we want to make sure that if anything happens to you, that you are taken care of. And it’s usually a limited company. And while the employees. Now when we say that, that does mean the directors can also be classed as an employee. And we can have the managing directors who have the insurance and that way. So if you do have a managing director and they’re chatting to you, you want to look at income protection, instead of sorry, going for the personal income protection, which you could potentially look at it through the limited company, which has certain benefits as we will go through it. You know, as I’m going along, in a sense. So this is all about somebody who’s really valuable to the business and if something happens to them, we want them to be taken care of. Now one of the trickier things here is suggesting possibly income protection for somebody who isn’t select the managing director because some firms will possibly want to do that. And you might go into the group income protection cyberspace. And there’s there’s pros and cons to doing group income protection or executive income protection on that situation. Far too much for me to go into your hundreds this, this is one of them keeping it as like a shorter snippets episode for you.

03:09
But it can be quite tricky. Because, you know, some people can turn around and say, well, if I’m, you know, you know, if they’re not doing grouping and protection, they probably are more of a smaller firm. And we do have about I think it’s about 80% of the businesses in the UK are SMEs or small firms. You can have people there who are saying, well, why should I be paying for this? Why they’re getting them for them themselves? Personally, Nina? And that does make sense. In many ways, you know, why isn’t this person doing it themselves is the employer responsible? There’s arguments for and against that. What I would say is that there is quite a good argument for an employer doing it. On the basis that let’s say we have somebody claiming, on this pause, where we’ve set up this policy for an employee, it’s not the Managing Director, it’s their right hand person who they absolutely rely upon. And something’s happened and they can’t work. Well, what’s going to happen is, is that assuming that the obviously the claim is successful, and the insurer is going to pay the money to the company, and then that money will then be paid to the person through the usual payroll. And that actually does benefit the company and not everybody can see that, like the initial side of things. I think a lot of people’s initial instinct is to go, Oh, why am I paying that for somebody, you know, kind of thing. But it actually does have a benefit. Because if the money is coming in from the insurer, let’s say £2000, there’s just a random number, let’s say £2000 going to come in from the insurer to pay for that person’s salary. Well, that means the company itself would usually be paying that £2000 or so to the employee as part of their wages and they’re not having to pay that the insurance paying it. So the employer suddenly has that person’s usual pay wall around, kind of just sat there in the company. Now, that can be used for a number of different things. It might be that this person on the right hand person And we’re actually going to be really difficult for fill orders are our service levels going to be impacted and our profit levels might alter a bit. So that money that we’ve been bringing in, you know, it might just be equaling out and things like that. And, but it could be that, you know, with that money

Kathryn Knowles 05:15
will instead of it’s suddenly and especially with small business, if something happens to one of the key people, it often is the managing director that has to then step in and really take on top of things as well, because, you know, ultimately, they have probably started in the role originally or done it all themselves at some point and have got more people in to take over some of that, that workload, so that instead of them having to come back in well, maybe that money that spare in the company now because insurance paying the you know, the wages, this person, maybe we can recruit someone, or maybe we can hire for a little bit of consultant who can just take over for a little bit and, and help and step in, you know, really quickly and urgently, maybe there’s another member of the team that we can potentially say to them, like too much work in a few more hours, you know, obviously always just been normal allows them. So I think you’ve maybe got somebody who’s working, I don’t know part time and you can have said well look for a little bit Do you mind going to full time role, and then you’ve got the money spare to be able to do that. So not only is it helping the employee, it does actually end up helping the employer term, the payments for the executive and protection are paid for by the company, and they can be offset against corporation tax.

06:27
So that is a huge benefit over personal income protection, especially if you’re advising somebody with a limited company or getting this type of policy. The other positive things that can go up to 80% of earnings potentially. Now, it’s really, really good because usually with income protection, so we’re usually sorry, between 60 65%, you know, it can fluctuate either side of that. But you know, we don’t get the options go up to 80% of earnings through personal routes. You can also cover things like pension contributions to which is again, really, really important. We can’t do that through the personal income protection, which is only the executive income protection. And that we can do that we can do it in the group space. But I’m just trying to distinguish between the business and personal ones at the moment. And we can possibly as well include National Insurance contributions to Now that one is obviously debatable depending on the person’s plans in terms of private pensions, or just go mistake pensions, things like that. And obviously, if you are a financial advisor and you’re looking at this for somebody, you will probably have a really good idea as to as to whether or not both of those would be useful or not. It’s obviously every situation is different. As I say when it comes to a claim, and we the claim will be paid to the company and then paid to the employee. But what’s very, very important here with claims is that if you are insuring a company director with an who will proceed with an executive income protection policy, if they continue to take dividends from the company, that is while it will affect when that claim can start from the insurer. And that is something to talk really early on with somebody when you’re advising them because it can be quite confusing fixing so well, I’m not taking anything but hang on a minute, you’re taking difference, like I’m taking a difference. I’m not taking like the PA ye type thing.

Kathryn Knowles 08:20
And that in itself, obviously this is all about somebody that’s a claim is all about somebody who is financially worse off because they cannot work. So if you’re still continuing to take dividends, and you’re still obviously taking a good amount as well. And then that can lead the insurer to say, well, we’re not going to pay out until your income level drops to this amount, and we’ll top you up or until it stops completely. It doesn’t make the claim much trickier in that kind of a situation, which obviously, we’re just really, really want to avoid if at all possible. And in terms of why you would do the executive income protection versus the personal obviously, executive income protection, we’ve got the higher earnings, you’ve got going up to 80%, we’ve got that wonderful thing with the premiums being paid for by the company, it can be offset against corporation tax. The benefit of doing personal though at times is the if the company faults so if for some reason the company does cease to exist, then we can have trickiness in terms of the policy doesn’t tend to be able to be changed to a personal option with relevant life insurance. So again, I’m just kind of seeing them Single Life policies. That’s why I kind of seeing them is kind of similar in my mind. With relevant life insurance, you can often convert the life insurance to a personal policy. And the only thing with it is if you do do that you do lose the terminal illness benefit that comes with the plan. But obviously, depending on situations it might be better to do that rather than starting afresh depending upon the person’s age since they originally did the first policy or any health changes that might have happened. But in the personal income protection side, versus the executive income protection side, it’s usually it usually would end when the company folds. So that’s sort of like the really key things about this are really important things to think about employer employee relationship, you prove that with pa ye earnings. So if there’s that’s another thing as well, that must be pa ye earnings to be able to prove that there’s an employer employee relationship. So we’re going to with our people, we’re going to improve that there’s a relationship there, we’re going to know that we can do a higher amount of some assured and we’ll do other ways we can include the pensions that an IRA contributions, but we’re going to make sure as well that we’re speaking to directors that they’re very, very clear from the start about the way that a claim would work. Because we do in a sense, we do need them to stop taking the dividends to be able for the claim to be going ahead, you know, there needs to be in a sense not working, obviously, and to be able to claim on a policy that says we’ll pay out if you’re no longer able to work. So here’s an example of somebody that I did some income protection, food through income protection. For us, it was having a bit of a moment there was an eye. And so somebody in their mid 40s, or a nonsmoker. And I did index linked or RPI linked executive income protection. So for this person based on their salary and earnings, we did a little under 5100 pound per month in terms of their monthly benefits. And that included their national insurance contributions, and also one and a half 1000 pounds to go to their pension. Again, if they were able, if they were became unable to work. And due to ill health, we did it on a four week deferred period. So the four week defer period is, is better, as with many of these things, because again, if we would, this person was somebody who was a managing director, if they are obviously ill, and yes, there might be money in that company, they could potentially draw his dividends, things like that. But,

11:54
you know, obviously, we want to keep that in there. Because we don’t want to be drawing it as dividends, because we need to be using that money to pay someone else to come in and take up some of the workload while we’re unable to work. And we also don’t want our client’s to not be able to get their money that they need to live. So far, we’ve deferred period is ideal, due to age 67, based upon their age, and it was based upon the current suggestions in terms of state pension age, and it was a full claim. So that means that if they were able to claim successfully, they have the potential to pay their income all the way to their 67th birthday. And the cost for that came to 215 pounds per month.

Kathryn Knowles 12:34
So I hope that’s been useful, giving you some ideas as to what the differences are, what’s more, it makes executive income protection standout how that pricing might look, I’ve received with income protection, the pricing changes for normally. And you know, I say I had, you know, obviously just over 5000 pound a month there, that was included in the pension contributions, if you took them out, if you took the NI contributions out, if you made an eight week deferred instead of four week, you know, it’s there’s so much you can do to change around and play about with that premium. So it is it’s a very, very flexible type of policy. So it’s a good one to have a look at. Unfortunately, we are at a stage at the moment where there aren’t lots of insurers that can offer executive income protection. So if you do find that you’re wanting to go down this route, but the person’s situation, whether or not that’s health or travel or sports or anything like that means that they can get insured with a couple of insurers that are able to offer it, then you would probably need to go more towards the

13:30
personal space or ideally possibly group income protection, which again, the periods are paid for buy the company and offset against corporation tax. Thank you for listening, everybody. Next time I’m going to be doing an episode based on something that was context about on social media. It’s gonna be quite an emotional episode possibly for for some, because we’re going to be talking about how there has been a recent discussions in governments around the UK, about changes to laws regarding assisted dying, and, you know, potentially how that could affect the way the insurance industry works. And so just a bit of forewarning there that, you know, hopefully we’ll find it useful. But it might be for some people’s, you know, an episode that is a bit harder to listen to. As always, please do visit the website and practical hyphen protection dot code at UK to listen to the episodes and to get your CPD certificates and we have it on there. Thanks to our sponsors, the octa members. Thank you very much, everybody. Bye