The many benefits of self-employed income protection
So, you’re self-employed?
Congratulations! You’re part of the 5 million-plus people in the UK who have taken hold of the reins. It’s nice to say “farewell” to the traditional methods of making a living that we’ve all been prescribed.
Great, isn’t it?
- You’ve gone solo.
- Started your own business.
- Have a taste of real freedom.
- Also, you’re writing your own paycheck – daily if you want to.
The realities of health insurance and income protection
However, how would you cope if you were unable to work? How far would you really get on savings? And how much should you actually be worried about any of this?
The reality is that around 1 in 4 men and 1 in 5 women will face long term illness of 12 months or more in their working life. To put that in perspective, for me, that means at minimum two people sat in this room.
Now for some reason, as a species, we’re prone to this mindset of “it won’t happen to me.”
But what is this mindset founded on? Blind optimism, and I know I’m guilty of that.
When an accident or illness happens
So, the unthinkable happens.
- And you’re unable to return to work (short term or long term).
- And the paychecks cease.
- What can you actually do?
Well, you’ve got benefits of course. Personal Independence Payment (if you qualify) will net you somewhere from £21.80 to a whopping £139.75 per week! Talk about a lump sum windfall. No need to cancel the cruise this year: Her Majesty has got you covered.
Joking aside, you may well be eligible for some extra support. However, if your business has been even remotely successful, this will be a huge drop for you. So, what can you do before you head for the breadline?
The key here is being proactive rather than reactive. Don’t wait to find out if you’re one of the unlucky few, act before and avoid the risk.
Why you need income protection for self-employment
The number of authorised and regulated insurance options at your disposal are extensive. That said, we’d say that the most relevant option is self-employment income protection insurance.
Here’s the idea:
- You pay a monthly premium, for a predetermined amount of cover (Maximum is usually 70% of your pre-tax salary).
- Then, should you be unable to work due to an accident or illness, the provider pays out.
- You’re ensured to have a monthly income for your troubles.
What kind of self-employment income protection policies are out there?
There are different types of policies for self-employed people unable to work due to illness or injury. Some are cheaper and only cover you for 12 months to five years of being out of work. Others cover you for the term of the policy or to retirement.
So, let’s say John is 25 years old and takes out a 40-year policy (to cover him closely to retirement age) and 5 years in the needs to make a claim. Because John has the highest level of cover available to him, his insurer will pay 70% of his working wage, tax-free, every single month until he either goes back to work or until the remaining 35 years of the policy are up.
Now obviously this isn’t as good as being able to work and make your own way but we’re looking at a worst-case scenario here, that’s the whole point! Now John can pay his bills, contribute to the family’s income still, and even treat himself every now and again.
Other insurance policies to consider
Income protection insurance pays out consistently, which is why it’s the most beneficial option available in the market. But there isn’t an option to take the whole amount you’re covered for as a single lump sum.
Then there’s the matter of critical illness protection. In short, critical illness cover provides you with a larger lump sum payment if you’re diagnosed with a certain illness or undergo a specific type of surgery. Such policies are ideal if your illness or injury results in:
- large medical bills, or;
- necessary home renovations to accommodate your recovery.
If you have an interested in other forms of life insurance and health insurance, we also specialise critical illness insurance and term life cover as well as other forms of business protection. We’re registered in England and regulated by the Financial Conduct Authority.
We’d also recommend that you assess the other protection options available to you.
- If you have a mortgage, is there a payment protection plan?
- Do you have children or a partner? Well, could they manage without your household contribution?
- If you own a business, do your shareholders have protection in place? What about your credit risk or personal guarantees?
These are all important questions you should be asking yourself. Take comfort, because you have viable options for almost every eventuality. So by asking these questions, you are better preparing yourself for the inevitable risks of life.
Next steps to procuring the right self-employment income protection policy
So that’s an overview of what income protection is and how it could help you. There are a few decisions you’ll need to make about the right type of income protection policy to take out.
These will depend largely on your individual circumstances.
- How much can you afford to spend each month?
- How long should your cover last?
- Do you have savings you could rely on?
- How much of your income would you need to replace?
With all of our regulated insurance products, TCB Life works on the best advice basis. That means our advisors are trained to understand your individual circumstances and determine which type of cover is right for you.
This means you’re not over or underinsured, and you only pay what is necessary for your life and protection.
Speak to us about self-employment income protection
We highly recommend that you speak to an insurance professional who can help you compare your circumstances to the different plans available to you. If you’d like to speak with us, simply book an appointment at a time suitable for you.