As a contractor, you won't be entitled to traditional sick pay as you would in fixed employment. This can make things incredibly tricky if you find yourself unable to work due to an accident, illness, or injury.
With income protection insurance, you can effectively purchase 'sick pay' for yourself as a contractor. Let's take a closer look at why income protection has become essential insurance for self-employed individuals.
How does income protection insurance work?
Income protection is a type of personal protection plan which is designed to help provide you with a percentage of your income should you be unable to work due to ill health. The maximum amount that you'll be able to claim will depend on the insurer that you choose. Your advisor will be able to help you navigate the market and find a provider that meets your earning requirements.
Once you've settled on a monthly benefit amount, you'll need to decide how long you'd like to be covered. Unlike some accident & sickness policies which need to be renewed each year with a new quote, income protection policies cover you for a fixed number of years, similar to a life insurance policy.
John the 45-year-old foreman takes out an income protection policy with a monthly benefit of £1,000 per month to cover himself up to 65 years old. After five years, John suffers a back injury which means that he can never return to work as a foreman.
After passing his deferment period, John will then begin to receive £1,000 per month, every month, up until his 65th birthday.
What is a deferment period?
The deferment period is the length of time that you'll need to be signed off work for before the insurance company starts to pay out your monthly benefit.
The longer you're happy to wait before receiving your benefit, the cheaper your monthly premiums will be. This is ideal for those who have enough savings to support themselves financially for a few weeks or months before needing to make a claim, or for those looking for reduced monthly premiums.
Of course, without an income, it's very difficult to take care of other bills and commitments, so if you do need the benefit to begin paying out from 'day one' then this option is available.
How can I apply for income protection insurance?
Applying for contractor income protection insurance is simple. Once you've decided on the amount of monthly benefit that you'd like to receive along with the term and deferment period, you'll need to give your insurer some added information so that they can assess your application. Factors such as your job title, income, and any previous health conditions will usually be taken into account before final terms are offered.
In most cases, you'll be accepted on 'standard terms' and will be free to start your policy straight away. In other circumstances, you may find that a rating or exclusion is placed onto the policy to ensure that you can still access the full benefits of income protection but without certain pre-existing conditions.
For more information on income protection for contractors or for a personalised quotation, contact us today and a member of the team will be more than happy to assist.