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Income Protection Insurance May Not Be Fit For Purpose

Business Owners Income Protection Insurance May Not Be Fit For Purpose!

Many business owners have taken out Income Protection Insurance (to protect their families) that in the event of a claim only a portion or in some cases no benefit would be paid out in the short term. What’s worse is many company owners will pay these premiums for life not realising that they have wasted their money.

The issue arises around the insurance company’s definition.

For Loss of Earnings Cover if you are disabled they will calculate your benefit payments as the lesser of:

1. (A-B) X 75%; where:

• A = pre disability income

• B=monthly income and other income received while disabled

For Loss of earnings Plus Cover they will calculate your benefit payments at the greater of;

1. (monthly benefit- B); and

2. (A-B) X 75%; where:

• A = pre disability income

• B=monthly income and other income received while disabled

In either case any income you receive from your business would be offset against your Income Protection Insurance and mean that the benefits you were counting on from your Income Protection Policy may not be paid out come claim time.

Des Morgan a Business Insurance Consultant with The Portfolio Company Ltd said

“It is important that Business Owners income protection be aligned to their shareholders buy sell agreement. As an example if the buy sell agreement stipulated that in the event of an illness the shareholder salary would continue for one year then your Income Protection Plan should have a 365 day wait agreement before benefits are payable . This longer waiting period will substantially reduce your premiums.”

He said another solution if you have a mortgage is to take out Mortgage Protection Insurance which pays your Mortgage payments in the event of illness. Many insurance companies allow insuring either 40% of income or 110% of your mortgage payments and this benefit for many insurance companies would not be considered other income when claiming against your Income Protection Benefit.

For further information on Business Insurance go to


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