Executive Income Protection: How It Differs from Standard Group IP and When to Use Each
For most employees, a standard group income protection (GIP) scheme provides an adequate financial safety net if they are unable to work through illness or injury. The benefit replaces a portion of salary during long-term incapacity, bridging the gap between statutory sick pay (which runs out after 28 weeks) and return to work or retirement.
For senior executives and high-earning professionals, the standard group IP model has significant limitations: the benefit is typically capped at a level that is inadequate relative to total remuneration, the definition of incapacity may not reflect the executive's occupational reality, and the tax treatment — at individual income tax rates in the hands of the employee — reduces the net benefit significantly.
Executive income protection (EIP) is designed to address these limitations. This guide explains how EIP works, how it compares to standard group IP, and when each is the appropriate solution.
As of 2026, group and executive income protection products are offered by a range of UK and international carriers. Terms, benefit levels, and tax treatment vary. This guide provides a general overview and does not constitute regulated financial advice.
How Standard Group Income Protection Works
A standard group IP scheme is arranged by the employer and provides:
- A benefit of typically 50% to 75% of salary (gross) on long-term incapacity
- After a deferred period — typically 13 or 26 weeks — when employer sick pay or short-term disability benefits end
- Until the earlier of return to work, death, or the policy's cessation age (typically state pension age)
- Paid as a regular income to the employee, subject to income tax and National Insurance as employment income
The key limitations for executives:
1. Benefit Level Cap
Group IP schemes are typically structured around basic salary. For executives who receive significant additional remuneration — bonuses, commission, car allowances, pension contributions, equity awards — the insured benefit (based on basic salary only) may be a fraction of their total compensation.
An executive earning a basic salary of £150,000 plus a £100,000 annual bonus receives group IP of (say) 75% × £150,000 = £112,500 gross per annum — and does not receive any IP benefit in respect of the £100,000 bonus element. If the full total compensation package defines their lifestyle commitments, the group IP benefit falls well short.
2. Insurer's Aggregate Benefit Cap
Group IP insurers impose a maximum insured benefit, which varies by provider — as of 2026, individual-insurer caps commonly fall in the region of £250,000 to £425,000 per annum, with the exact figure depending on the insurer and scheme. For executives whose total remuneration is significantly above the relevant insurer's ceiling, there is a structural gap.
3. Definition of Incapacity
Many group IP schemes use a "suited occupation" or "any occupation" definition of incapacity — meaning the insurer pays only if the executive is unable to perform any reasonably suited work, not just their specific role. For a highly specialised executive, the inability to perform their senior role — due to cognitive impairment following a serious illness, for example — may not meet an "any occupation" test if they could technically perform a lower-level managerial role.
4. Tax Treatment
Group IP benefits are taxed as employment income in the hands of the employee, at their marginal income tax rate. For an executive in the 45% additional rate band, a gross benefit of £112,500 reduces to approximately £61,875 net — a significant reduction from the intended replacement ratio.
What Is Executive Income Protection?
Executive income protection (EIP) is an individually placed income protection policy — arranged by the employer on behalf of a specific executive — that supplements or replaces the group IP scheme for that individual.
Key features typically distinguish EIP from group IP:
1. Own-Occupation Definition
EIP policies typically use an "own occupation" definition of incapacity — the executive is incapacitated if they cannot perform the material duties of their specific own occupation. This is the most generous definition available and is particularly important for senior executives whose role involves high-level strategic, client-facing, or technical responsibilities that cannot be replicated by an alternative occupation.
2. Higher Benefit Level
EIP is not subject to the group scheme insured benefit cap (though insurers will still apply an aggregate incomes replacement ratio limit — typically 60% to 75% of all sources of income including group IP, state benefits, and any other disability income). By insuring the executive individually, the benefit level can be calibrated to include bonuses, dividends (where the executive is also a shareholder), and other elements of total remuneration.
3. Total Remuneration Basis
EIP can be structured to provide a benefit based on total remuneration — including bonus, profit share, and pension contributions — rather than basic salary alone.
4. Tax-Efficient Premium Arrangements
There are two common tax treatment structures for EIP:
Employer pays premiums (P11D treatment): The employer pays the premiums, which are treated as a benefit in kind and are taxable for the employee (reported on P11D). The employee's National Insurance is payable on the premium value. However, when a claim arises, the benefit is paid to the employer (who then pays it to the employee as salary), and employer NI is due — but the employee benefits because the claim proceeds come through the payroll, retaining income tax treatment but in the employer's hands.
Individual arrangement with employer contribution: The policy is arranged in the executive's personal name, with the employer meeting the premium cost. The premium is effectively additional remuneration to the executive. The claim is paid directly to the executive — outside the employer's payroll — and subject to income tax via self-assessment. This can be more efficient in some circumstances.
The tax treatment of EIP is nuanced and has evolved with HMRC guidance. The interaction of the premium funding method with how claim proceeds are taxed should be reviewed with an accountant familiar with the current rules.
Combining Group IP and EIP: The Common Structure
For many senior executives, the optimal arrangement is:
- Group IP scheme covers the base salary (at the group scheme's benefit level and terms)
- EIP supplements the group IP for the gap — covering the element of remuneration not insured under the group scheme (bonus, additional pay elements) and/or providing the own-occupation definition upgrade
The EIP benefit is coordinated with the group IP benefit so that the total income replacement (from both policies combined, plus any state benefits) does not exceed the insurer's maximum replacement ratio (typically 75% of total insured earnings).
Example
An executive earns a total package of:
- Basic salary: £200,000
- Annual bonus: £150,000
- Pension contribution (employer): £30,000
- Total: £380,000 per annum
Group IP benefit: 75% × £200,000 = £150,000 gross per annum
EIP supplements for: the bonus and pension contribution element = 75% × £180,000 = £135,000 gross per annum (subject to aggregate replacement ratio limits)
Combined maximum benefit: £285,000 gross per annum (approximately 75% of total remuneration)
Income Protection for Internationally Mobile Executives
Standard UK group IP schemes typically define incapacity and pay claims based on the executive's UK employment contract. For internationally mobile executives — particularly those on secondment or split between roles in multiple countries — this creates practical complications:
- The deferred period may reference a specific employer sick pay policy that does not apply in the executive's host country
- The "own occupation" (or suited occupation) may be defined in terms of a UK-based role, which the executive is not currently performing
- Benefits paid during an overseas secondment may be subject to withholding tax in the host country
Individually placed international income protection policies — issued through international carriers and structured for mobility — are often more appropriate for executives who spend significant time working outside the UK.
Deferred Period Alignment
EIP is structured with a deferred period that must align with the end of any employer sick pay obligation and the group IP deferred period. Common deferred periods are 13 or 26 weeks. The EIP should not pay out during a period when the executive is already receiving full salary — this creates double coverage that the insurer will not allow.
Ensure that the EIP deferred period is correctly calibrated to the employer's sick pay policy and the group IP deferred period. A mismatch — for example, employer sick pay for six months and EIP with a 13-week deferred period — may result in overlap and a proportionate reduction in EIP benefit.
Waiver of Premium
Executive IP policies should include a waiver of premium benefit — ensuring that the policy premiums are waived during any period of successful claim (i.e., when the executive is incapacitated and receiving the IP benefit). Without waiver of premium, the executive or employer would need to continue paying premiums while a claim is in payment, which adds unnecessary cost.
Key Questions When Setting Up Executive IP
- What is the executive's total remuneration, and what elements should be insured?
- What does the group IP scheme already cover, and what is the gap?
- What definition of incapacity is required — own occupation is preferred for senior executives
- What deferred period aligns with the employer's sick pay policy?
- How will premiums be funded, and what is the most tax-efficient structure?
- Is the executive internationally mobile, and should the policy be placed internationally?
- Should the benefit be level or indexed (escalating with inflation) during a claim?
How Global Investments Can Help
Global Investments advises HNW executives, board directors, and business owners on executive income protection — designing arrangements that address the gaps in standard group IP and structure the premium funding and tax treatment in the most efficient way.
We also advise internationally mobile executives whose income protection needs cross borders, and can source internationally placed policies from carriers with appropriate cross-border claim management capabilities.
A review of your current income protection arrangements — including both the group scheme and any individual policies — is the starting point. Many executives are significantly underinsured, relying on a group IP that covers only a fraction of their total remuneration.
Contact Global Investments to arrange an executive income protection review.
Tax treatment depends on individual circumstances and may change. Income protection benefits can vary and are subject to the specific policy terms. This guide is informational only and does not constitute regulated financial advice.
This guide is for general information only and does not constitute financial or insurance advice. Policy terms, premium rates, and insurer eligibility criteria change — always verify current terms with a qualified independent adviser before taking out any policy.