Why do Contractors need Income Protection?

12th November 2019

 

If you’re reading this then it’s likely you work for yourself. Whether you’ve set up a limited company or are working under an umbrella, it’s important to make sure your income is protected. If it isn’t and you unfortunately fall seriously ill or are injured, you could find yourself in a compromised financial situation.

You can prevent this scenario with Income Protection.

What is Income Protection?

There is a common misconception about Income Protection that it will cover you for gaps between contracts. However the policy is actually designed to financially help if you’re unable to work and earn due to an illness or injury. It ensures that you continue to receive part of your income until you have either been signed off by a doctor as able to return to work, you retire or the policy term ends.

The benefits of Income Protection:

Gives you peace of mind – Worrying about how you’re going to keep up with your monthly payments could be slowing down your recovery process. With Income Protection, you can rest easy and get better knowing that your direct debits, bills and lifestyle costs will be covered.

It covers you for most illnesses – Income protection will cover you for most illnesses and injuries (excluding pre-existing medical conditions) that you can make a recovery from. If you’re looking to cover life-changing injuries, you may be interested in Critical Illness cover. The criteria for making a claim is based on the fact the illness or injury has stopped you from working, not what the illness or injury is.

You’re covered until you can start working again – With long term Income Protection, the payout will continue until you are signed off by a doctor to return to work, the policy term ends or you retire. Short term Income Protection covers you for between 2 to 5 years of no working due to an illness or injury. Most Contractors take out long term cover as they want to know that they are financially protected in the event of long term illnesses or injuries.

Claim as many times as you need – you can claim as many times as you need to on an Income Protection policy (for the duration of your policy term), without impacting your monthly premium amount.

Why do Contractors need Income Protection?

As you no longer have an employer to fall back, unlike regular employees, you will not receive any form of payment if you’re unable to work due to a critical illness or injury. If you can’t work, you won’t be able to earn, meaning you may have to dip into your savings to keep up with household bills and day to day living.

For this reason, Income Protection for Contractors, Freelancers and Self-Employed individuals is one of the most important types of personal insurance to consider. Legal and General found that, on average, people in the UK could be on the breadline in just 32 days. Having Income Protection in place could prevent that from happening.

How does Income Protection work?

Income protection for Contractors typically protects between 50% – 70% of your salary and dividends. Like you’re regular income, you can choose how you use the payout, whether that’s to cover mortgage payments, bills or other lifestyle expenses. There are a number of factors that can affect your monthly premiums including age, weight, health, if you’ve smoked in the last 12 months, and any pre-existing medical conditions, as well as the deferred period and length of the policy.

 


 

To secure Income Protection for Contractors, get in touch with one of our expert Contractor protection advisers and discover how much it would cost you to remain financially protected in every eventuality.

 

All content is accurate at the time of publication

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