What Is Executive Term Assurance?

Executive Term Assurance is a life insurance policy designed specifically for employees and directors of companies in Ireland. It provides a lump sum payment to the family or dependents of an insured employee or director if they pass away during their term of employment with the company. The cover is typically paid for by the company, not the individual, and forms part of the company’s overall benefits package.

Why Is It Relevant for Small Companies?

For small companies, offering Executive Term Assurance helps:

• Attract and retain key employees or directors.
• Provide peace of mind that your loved ones will be financially secure in the event of a tragedy.
• Deliver a cost-effective benefit with significant tax advantages.

Key Features and Benefits

• Employer-Paid Premiums: The company pays all premiums, rather than the individual, making it a direct business expense.
• Tax-Deductible: Premiums are usually tax-deductible as a company expense, reducing your corporation tax bill. For example, if your company pays €2,000 annually for this insurance and the corporate tax rate is 12.5%, you could offset €250 per year.
• No Benefit-in-Kind (BIK): Employees or directors receive the benefit without additional personal taxation, as the policy is not treated as a benefit-in-kind.
• Maximum Cover: The lump sum payout is typically capped at four times the employee’s final salary. Any excess is used for an annuity or pension for dependents.
• Flexible Terms: Policies can run up to the employee’s normal retirement age (maximum typically age 70), ending if employment ceases or upon retirement.
• Single Life Cover: Executive Term Assurance is structured for a single life and must be set up under a trust, where the employer is usually the trustee.

Example Scenario

Imagine a small company in Cork with a director earning €90,000 per year. The company can take out Executive Term Assurance with up to €360,000 (4x salary) in cover. The annual premium of €2,500 is paid by the company and treated as a deductible expense. If the director dies while employed, the family receives a tax-free lump sum, ensuring financial stability without a drain on personal income.

Important Restrictions

• Cover ends if the employee/director leaves employment or retires.
• Cannot be used as collateral for a loan or taken in joint/dual capacities.
• Must comply with Revenue rules regarding trust and payout limits.

How to Set Up Executive Term Assurance

1. Speak to a financial advisor or insurance broker familiar with Irish pension and company insurance products.
2. Decide on the amount and duration of cover, ideally up to four times the insured’s final salary.
3. The company sets up the policy under trust and pays regular premiums.
4. Review your policy regularly, especially if salaries or company circumstances change.

Why Small Companies Should Consider It

• Tax efficiency makes it affordable.
• Protects your company’s key people and their families.
• Enhances your overall employee benefits package with little administrative burden.

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By investing in Executive Term Assurance, small companies in Ireland can combine robust financial protection with valuable tax savings—giving peace of mind to employees, directors, and the wider business.