Income protection insurance for self-employed

Being self-employed gives you the freedom to work on your own terms, but it also means giving up traditional employment benefits, like paid sick leave. For self-employed individuals, income protection insurance can be crucial in providing a financial safety net if illness or injury prevents them from working.

What is income protection insurance?

Income protection insurance is designed to help people maintain financial stability when they can't work due to illness or injury. In simple terms, it's a long-term insurance policy that provides a regular, tax-free income, typically a percentage of your earnings, to cover essential expenses when you need it most.

Why consider income protection?

If you're self-employed, it’s worth considering how you would meet your financial obligations if you were unable to work for an extended period. Could you keep up with bills, mortgage payments, or other personal expenses? If the answer is no, then income protection insurance can provide peace of mind.

Beyond covering personal expenses, income protection can also support your business, helping to keep it running smoothly while you recover. This is especially valuable, as most self-employed individuals don’t have access to statutory sick pay benefits like those in traditional employment.

How does income protection work?

With an income protection policy, you’ll receive a monthly payment that covers a portion of your lost income, generally ranging from 50-70% of your regular earnings. You can choose the policy term that best fits your needs:

• Short-term policies typically provide coverage for a set period, such as 12 or 24 months.

• Long-term policies may pay out until you're well enough to return to work, reach retirement age, or until the end of the policy term.

Most policies allow you to make multiple claims, so if you experience multiple health setbacks over the years, the policy can continue to provide support.

Key factors to consider:

1. Waiting periods: Most income protection policies have a waiting period before benefits begin, ranging from one week to several months. Choosing a longer waiting period can reduce premium costs, but it's essential to consider how long you could realistically manage without an income.
2. Coverage options: Policies can vary significantly. Look for coverage that aligns with your monthly expenses, lifestyle, and business obligations.
3. Premium affordability: Premiums can vary based on factors like amount of monthly benefit, age, health, and the length of coverage. It’s wise to compare policies from multiple providers to find the best fit for your budget and needs.
4. Additional support: Some insurers offer added services, like rehabilitation support or counselling, to help you recover and return to work sooner.

Income protection insurance is a way to safeguard your income. While it may seem like an additional expense, the cost of a monthly premium is often worth the peace of mind that comes from knowing you have a financial cushion if the unexpected happens.

Speak to an adviser today!