17th September 2019
When it comes to insurance, whether that’s Life Insurance or Income protection, it’s important that you understand all of the features of your policy so that you’re confident that it meets your needs. To help you understand the various terms relating to Contractor Insurance we’ve put together this A-Z of Contractor Insurance terms.
A beneficiary refers to a person (or a group of people) entitled to receive a payout from a Life Insurance policy in the event of the insured person passing away. They’re typically partners or family members.
This is a document (either on paper or email) provided by an insurance company as proof that an insurance policy has been issued. It will likely include the name of the policy holder, the date from which the policy is in effect, what it covers and limits and any other relevant details.
When you make a claim on an insurance policy you are formally notifying the insurer that you have suffered a loss or damage that you believe is covered by the policy and you are requesting action. The insurer will review your claim and see if the event or circumstances are covered by the policy. You may need to provide proof it is a genuine claim.
Critical Illness Cover (CIC) pays out a tax-free lump sum if you are diagnosed with a serious illness that prevents you from working again. Insurers will have a list of different illness that you will be covered for and an expert adviser can help you find a Critical Illness policy that suits you and your circumstances. Find out more here.
This is a benefit that some employers provide if you pass away while in their employment. It typically pays out 4 times your salary to your family to help them cover the loss of income and get back on their feet after your death. When you work for yourself you do not receive this benefit, which is why it is important to have Life Insurance in place.
A deferred period is the time between you being unable to work and the time payments from an Income Protection policy claim begin to pay out. This could be anywhere from 1 day to up to two years (most commonly 4 weeks to 26 weeks). The longer the deferred period, the more likely your monthly premium is to be less. As a Contractor, you can take advantage of having longer deferral period, as you are able to take money out your business to cover wages lost.
Excess is the contribution you are required to pay towards a claim you make. An insurer may have many types of excesses that can apply so it is important to ensure that the excess amount is suitable for you and your circumstances.
Many insurance policies have specific exclusions in place. These are conditions that will not be covered by the insurer. This may include certain pre-existing medical conditions and must be declared on your policy documents.
Income Protection provides you with a regular wage if you become ill and are unable to work for a short period of time. It usually pays around 50% to 70% of your standard income after the deferral period has passed. This replaces the benefit of ‘sick pay’ that you may have received when you were employed full time. Find out more here.
Indemnity Insurance will protect you against the cost of any claims made against you and your business by a client for any losses they suffer due to your work. You may think you would never do anything that could negatively impact your client but they may see it differently, which is why it’s important to have Indemnity Insurance in place. Find out more here.
In the event of your death, a Life Insurance policy will provide your beneficiaries with a payout. This payout could be used to cover the remaining mortgage, funeral costs and help your family with day-to-day living and replaces the death in service benefit that you would’ve received whilst full-time employed.
This is the amount you’ll pay for the cover. You can either pay for your premium monthly or annually. Typically the premiums tend to be slightly lower when paid annually.
The price an insurer offers for insurance cover based on the personal information provided by yourself.
Relevant Life Insurance provides you with the same cover as ‘traditional’ Life Insurance but it is more tax-effective. Relevant Life Insurance is paid for through your business as an expense, rather than out of your already taxed earnings. It doesn’t count as a benefit-in-kind so you will not have to declare it as P11D. You can find out more about Relevant Life Insurance here.
A trust is a way of managing assets and, in the case of insurance, is when an asset is set aside for a particular person, or group of people (the beneficiary/beneficiaries). A Life Insurance policy can be set up into trust to ensure that your loved ones get the whole sum you wanted them too and they can usually avoid the lengthy probate process if the policy is set up in this way. Find out more here.
All content is accurate at the time of publication
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