Protecting a self-employed income

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You’ve set up your business and work hard but what would you do if you were suddenly unable to work? You can protect your income and it isn’t as expensive as you might think.

 

In 2017 research by LV revealed 28% of self-employed people worry about being ill or having an accident and yet only 4% have any form of income insurance. Many believe that as a sole trader, freelancer or small business owner, they’re excluded from income protection products. More worryingly, 33% said they couldn’t survive more than 3 months without their current income.

 

Income protection insurance is ideal for the self-employed and isn’t as expensive as many might think. Options within income protection policies, such as claim period or opting for a longer deferral period, can lower costs even further.

 

What is a claim period?

The claim period refers to the length of time you’ll receive the benefit payments for in the event of a claim. You can arrange the policy on a long-term payout which will continue to pay the benefit for the length of the policy, which will usually end around the time of your planned retirement, if you are unable to return to work. There are cheaper short-term policies which will payout for a maximum of 1, 2 or 5 years per claim.

 

What is a deferred period?

The deferred period refers to the length of time you are off work before the benefit starts paying out. Typically a deferred period will be anything between 1 – 4 weeks. However, this can range anything from 1 day to 12 months. The longer the deferred period the cheaper the policy. Normally a self-employed person will not have any existing sick pay schemes and therefore the ideal deferred period will be based on how long you can maintain your lifestyle and living costs before needing the payout to start.

 

How will income protection help me?

When you’ve worked hard to set up by yourself, every penny counts and handing over precious income when you’re feeling perfectly well can feel like an overprotective indulgence. However, income protection insurance will:

  • Replace part of your income should you be unable to work due to illness, accident or injury. It may cover you for stress-related illness, mental health or physical illness or injury. Most illnesses are covered and the policy may include short-term as well as long term incapacity.
  • Payout until you can return to work or until you retire, or until the policy end date.
  • You can select to start the policy payments after a set amount of time off work in order to lower the premiums. This is ideal if you have set aside a certain amount of money for short term illness or unexpected events but wouldn’t be able to sustain it long-term.
  • There isn’t a limit on claims

 

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