As someone who runs their own business, you are no doubt aware of the negative effects illness can have on your income. Unlike people who are employed by a company, self-employed workers get no handy sick pay if they can’t make it into the office. But whilst you may be able to struggle on through a cold or a minor injury, what would happen to your business if you fell seriously ill or were involved in an accident? Income protection insurance is one way you can protect yourself against the financial implications of being unable to make it into work for a long period of time.
Self-Employed Income Protection
If you were unable to work, how would you survive financially? If you have no savings or a partner’s income to fall back on you would have to rely on government ESA benefits, which may not be enough to pay your bills.
An income protection policy is designed to replace most your income if you cannot work because of accident or sickness. Income protection can cover both employed and self-employed workers, but self-employed people who do not receive statutory sick pay often find this type of insurance very reassuring.
Cover up to 70% of your income
Income protection can potentially cover up to 70% of your income. For self-employed workers, your earnings will be calculated based on your share of the annual pre-tax profits. The more of your income you choose to cover, the more expensive your premiums will be. When choosing a policy, aim to cover your essential monthly outgoings like your mortgage, bills, council tax, and credit card debts.
Get paid for as long as you need
An income protection policy can be tailored to suit your own financial circumstances, and you can choose to be paid your benefits from 12 months up until retirement age if necessary. This period of time is called the benefit period, and the longer it is the higher your premiums may be.
Let’s take Joe Bloggs as an example. Joe is 40, a self-employed accountant, and has taken out a policy with a benefit period of 25 years (until he reaches retirement age). At the age of 45, Joe seriously injures his back and cannot continue his business. His policy will pay him part of his income for the next 20 years or until he can get back to work- whichever is soonest.
If Joe had taken out a policy with a benefit period of 12 months, his premiums would have been cheaper. However, at the 12 month date his policy would stop paying out his benefits, regardless of whether he had recovered from his back injury, and Joe would have to rely on government benefits until he could return to work.
What about redundancy insurance?
Unemployment insurance is often taken out by employed people as protection against redundancy. But whilst this benefit can be useful for those who don’t run their own business, self-employed people may find it particularly hard to get suitable cover. The qualifying process for self-employed redundancy insurance is very strict, and you may need to prove your business has gone bankrupt through no fault of your own. However, that’s not to say that there aren’t policies out there- if unemployment insurance is something you are interested in then speak to a qualified broker to find out more about your options.
Conclusion: By considering income protection insurance you will have much greater peace of mind about your financial and business affairs.
Author bio: Chloe Hibbert writes on finance and insurance for ActiveQuote.com, an income protection comparison website.