What is Income Protection?

9th April 2019

 

We believe that everyone should be supported if they either fall ill or are injured, and are subsequently unable to work and earn money. When you work for yourself as a Contractor though you do not get the support of sick pay to financially protect you in these circumstances, unlike regular employees. This means you may have to dip into your savings pot to keep up with your mortgage payments, everyday bills and lifestyle costs. This is why it’s important as a Contractor to have Income Protection in place.

 

What is Income Protection for Contractors?

Income Protection insurance is a long-term insurance policy designed to help you if you can’t work or earn because you’re ill or injured. It ensures that you continue to receive a regular income until are able to return to work or retire, whichever comes first.

 

The benefits of Income Protection for Contractors include:

You’ll still receive a regular income – If you can’t work due to an illness or accident, you will still receive part of your taxable income – usually around 50-70% of how much you pay yourself.

Your premium is guaranteed – What you pay per month for your policy won’t change if you claim and then go back to work (and you don’t pay while you claim either)

Continued support – The policy will pay out until you’re medically able to work again. If you can’t go back to work, depending on the policy, you will continue to receive a payout until you retire, pass away or the policy term ends.

Everything’s covered – It covers you for all illnesses or accidents that mean you can’t work. It’s about your ability to do your job, not your illness, unlike other personal insurance policies.

Tailored to you – It is tailored to your income and outgoings, so you can be confident that you are always in the clear and will meet the payments you need to

Financial security – No matter what happens, Income Protection will ensure you and your family will be financially secure and not out of pocket if you’re out of action

 

How does it work?

The policy will only pay out once the ‘deferral period’ has passed. The deferred period on Income Protection insurance policies is the period between going off work (due to your illness or injury) and your income payment commencing. You can choose how long the deferred period is based on your savings and premium amount you are happy to pay as, the longer the deferral period, the lower your monthly premiums will be.

It is important to note that Income Protection will not cover you if you are in between contracts. It’s purely to cover you due to an illness or injury that prevents you from working. It should be seen as a substitute for sick pay.

 

Why do I need it?

What would happen if you fall ill or are injured and unable to work and therefore not receiving your monthly income? Could you meet your mortgage payments, your bills and your lifestyle costs? ?

With most of us working as hard as we do to protect and provide for our family’s, it’s important to understand what would happen to them if we were no longer earning. With around one million workers a year find themselves unable to work due to a serious illness or injury it is important that you put a plan in place to ensure this does not financially impact you and your family. This is especially important when you are self-employed as you don’t have the benefit of sick pay to fall back on.

 

How to set it up?

Finding the best Income Protection policy for you can be very time consuming. That is why, as a Contractor (we know how busy you are!), it’s best to speak to a specialist Contractor Protection broker who will do the leg work for you. However, before setting up Income Protection you should be aware of the different factors that could affect your premium.

The cost of the policy will vary based on:

  • Your age
  • Your occupation and its risk
  • If you smoke or have smoked in the last 12 month – this includes any sort of tobacco/nicotine
  • Your health – including your height, weight and family’s medical history

It’s important to answer any questions around the factors above as accurately as possible, as any discrepancies regarding these could make the policy invalid – meaning you will be paying for a policy that you wouldn’t be eligible to claim on.

 

Other types of insurance you should consider

There are several other insurance products you can use to protect yourself and ensure financial security if you fall ill, injured or pass away.

 

Relevant Life Insurance: A tax-efficient way to pay for life insurance that ensures your family receive a full payout in the event of your death.

Critical Illness Protection: Pays out a lump sum if you are unable to return to work due to a critical illness.

Private Health Care: Helps you get back on your feet faster by providing you services that are unavailable on the NHS.

 

If you’re looking to set up an Income Protection policy, get in touch with one of our Contractor Protection specialists.

 

All content is accurate at the time of publication

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