What is Business Income Protection?

 Business Income Protection represents a relatively modest slice of the UK’s Income Protection market, accounting for approximately five to ten percent of total sales depending on who’s data you look at. However, its significance is steadily growing as businesses recognise the necessity of safeguarding their operations from unforeseen disruptions. 

There are two types of Business Income Protection, Executive Income Protection and Key Person Income Protection. Both types of policies are taken out and owned by the business itself, however the benefits are used in very different ways.  

 

Understanding Executive Income Protection 

Executive Income Protection caters to small and medium-sized businesses, offering a safety net for directors and employees’ salaries in the event of illness or injury that renders them unable to work. Unlike individual policies, Executive Income Protection benefits are paid to the company, allowing businesses to fund sick pay through PAYE as well as cover National Insurance and pension contributions for the affected employee. 

A noteworthy advantage is the tax-efficient nature of Executive Income Protection. For employers, premiums are typically classed as a tax-deductible expense. Simultaneously, the policy benefits are not treated as a taxable benefit in kind for directors or employees, making it a great choice for companies striving to balance financial prudence with employee welfare. 

 

How is Key Person Income Protection different? 

While Executive Income Protection covers an employee’s salary, Key Person Income Protection targets broader business risks associated with the absence of pivotal personnel. This coverage is designed to shield a company from potential financial strain when a key employee becomes ill or injured, addressing needs such as: 

• Temporary replacements for key employees, 

• Compensation for lost profits, 

• Support in repaying business loans. 

Key Person Income Protection underscores the criticality of identifying employees whose absence could cause significant operational challenges. By mitigating the financial impact, businesses can better navigate disruptions while maintaining resilience. 

 

Complementary Coverage: When Both Policies Make Sense 

In scenarios where there is an insurable interest, businesses may benefit from combining Executive Income Protection and Key Person Income Protection. As an example, a small business may use Executive Income Protection to fund sick pay for a key employee but their absence would also threaten the company’s ability to meet loan repayments. Here, Key Person Income Protection could complement the coverage by ensuring the business has the necessary funds to meet the financial liabilities. 

This dual-layered approach illustrates how tailored Business Income Protection policies can address the multifaceted risks faced by SMEs, ensuring holistic coverage. 

 

The Importance of SMEs in the UK Economy 

The relevance of Business Income Protection becomes even more apparent when considering the UK’s SME landscape. At the beginning of 2024, there were approximately 5.5 million SMEs in the country. These businesses form the backbone of the UK economy, employing significant portions of the workforce. 

Between November 2024 and January 2025, 33.92 million people were employed in the UK. Even if every SME were a one-person operation, directors or business owners would still account for 16.2% of the workforce. In reality, many SMEs employ multiple individuals, emphasising the pivotal role of these enterprises in driving economic activity. 

With SMEs accounting for such a substantial portion of the UK economy, the need for comprehensive and accessible Business Income Protection becomes self-evident. Protecting key employees and ensuring operational continuity is not just a business imperative, it’s a huge opportunity for the protection industry. 

 

Business Income Protection Trends at SJP 

At St James’ Place, Business Protection Income Protection policies constitute around 14% of all Income Protection sales within our Protection referral service. Within this segment: 

• Executive Income Protection accounts for approximately 45% of sales, 

• Key Person Income Protection represents the remaining 55%. 

The appetite for these policies is increasing, with year-on-year growth of 24.1% for Exec IP and 17.2% for Key Person IP from 2023 to 2024. This growth reflects the opportunity there is in the SME sector for Income Protection.   

Business Income Protection is more than an insurance product—it’s a strategic investment in the sustainability and resilience of a SME business. By safeguarding against the financial repercussions of employee illness or injury, policies like Executive Income Protection and Key Person Income Protection enable businesses to mitigate against financial catastrophe. 

Discussing such cover with owners and directors of businesses can also present many more opportunities for protection advisers. For companies that have slightly more employees, it can lead to a discussion around group cover and it can also help facilitate an introduction to any business partners and key employees the client may have.  

Income Protection has seen steady growth over the last few years. I believe Business Income Protection is ideally placed to help maintain this growth long into the future.