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I am a management consultant operating through a limited company. What options do you offer and what are the costs please? Is income calculated on salary or salary plus dividends?
Question: I am a management consultant operating through a limited company, with just myself as director. What options do you offer and what are the costs please? Is income calculated on salary or salary plus dividends?
Answer: Thanks for your question. Unum have two plans that allow you to insure income paid through PAYE, dividends and directors loans. They are the Personal Income Replacement Plan and the Executive Income Replacement Plan.
The principal difference between the two plans is that the insurance contract for the Executive plan is between Unum and your company, whilst the contract underpinning the Personal plan is between you and Unum. As you may expect there are a number of other variations between the contracts in terms of how much can be insured and how benefits are paid. With regard to cost this does vary between the plans due to the structure of the plans and personal information such as date of birth, nature of occupation and how long you want the policy to run for.
We would recommend discussing Income Protection with a Financial Adviser given your situation as both plans offer different benefits. Unum is authorised and regulated by the FSA but we do not give financial advice. Instead, you can easily find out what level of Income Protection is best for you, and take out the right policy, by talking to an Independent Financial Advisor. If you don’t have one already, you can find the contact details of IFAs via: www.unbiased.co.uk.
From time to time we’ll be using this blog to answer questions from our readers about Income Protection, such as this one. Got a question of your own? Just click on ‘Ask a question’ here and we’ll do our best to answer.
February 19, 2012 at 7:54 pm
Executive income protection plan
February 20, 2012 at 10:43 pm
I am business owner with 10 employees. I pay myself a sminimal salary with the bulk of monthly income being dividends. I assume yuou have a policy available that will treat dividend payments as personal monthly income, subject to verification by an accountant. Ok, so far so good, but it is lilkely that if I fell seriously ill, the business would continue to operate. It would most liklely be in some difficulty, but it is likely that it would continue ti operate as we have long term contracts in place. Would your policy still pay out even though I might still be able to take dividends from business profits or benefit from the proceeds of a sale of the business?. I cannot be alone in this position. Many small business owners pay themselves mainly via a dividend, but their illness, while preventing them from working might not mean that all income from the business suddenly stops. In effect is there a policy that helps fund the business, becuase of my my lack of involvement, while still allowing for dividend payments to be made or the business being sold?
March 8, 2012 at 9:04 am
As dividend income is irregular depending upon the profitability of the business and the director’s shareholding, we treat it in the same way as other fluctuating payments.
One of the following two methods of dividend calculation must be decided at the outset of the policy:
• Basic annual salary plus dividends in the last 12 months (dividends will be limited to a maximum of 20% of the basic annual salary).
1 Dividends averaged over the last 3 years or shorter period (i.e. if the director has only been receiving dividends for 2 years, they will be averaged over 2 years).
However, when dividends have been included in the policy, they form part of the ‘loss of income’ benefit paid out during a period of disability. The claimant must therefore not receive or accumulate dividends, nor can they be paid to a spouse during this time.
In short, we can include dividends as part of the salary, but receipt of them must cease in the event of a claim.
Best wishes,
The AskUnum team