For many, being self-employed is one of the best ways of working they could ever have imagined. Being your own boss, choosing where and when you work, having the autonomy to chase the type of business you want and shape the business to your vision with no one to answer to.
Certainly, the benefits of being self-employed are numerous and enticing.
Unfortunately, for most people who are self-employed, especially in the early years of creating a sustainable business, there is little room to work with a cushion of capital in the bank. If something happens that prevents you from working, then you are often left with a shortfall.
At times like Christmas this can mean a minor stretch – getting through a three-day period, or even a week where you don’t put in any hours and spend the time with family can enforce extra work in the days leading up to the holiday as well as a scramble playing catch up in the new year. It can be difficult and threaten the odd headache, but it’s not too detrimental.
Being unexpectedly sick for a longer period though can threaten mortgage or rent payments and put bills into arrears. One week can be a struggle, two causes stress and anxiety and an entire month off can drive even the best organised worker to be suddenly thousands of pounds into the red.
Many self-employed people assume that the government supported Statutory Sick Pay (SSP) scheme will cover them. Unfortunately, SSP is only available to those in full-time employment, and working for yourself as a sole trader doesn’t provide that criteria.
If you own a limited company and are a director of that company, then the rules are in your favour and SSP is back on the table – though many believe it isn’t worthwhile as ultimately the payments for SSP come out of the company finances anyway.
Whichever the case, the fact is that statutory sick pay is either not available or effectively worthless to the self-employed, leaving them struggling alone.
Enter Income Protection.
An income protection plan is often the best choice a self-employed person has to protect themselves from financial ruin should they become ill.
With proper cover in place, income protection can provide 65% of the gross income previously accounted for by you if you are self-employed, making all the difference between covering bills and potential bankruptcy.
One of the difficulties for insurance companies when providing income protection cover for the self-employed is one of correct assessment of cover. In the first few years of running a business, a self-employed person has very little accounting history to show sustained income and thus it can be very difficult to define the right level of income protection.
The cost of income protection will obviously rise in line with the level of cover, as with any insurance product, but unlike many other situations where over-insuring is possible, companies take great care to make sure that an unrealistic level of income protection isn’t in place, even if the premiums are paid.
An example of this would be someone valuing their self-employed business (and thus, their own income) at £100,000 per month when it is far from that. At 65%, the insurance company might be expected to pay a staggering £65,000 per month to the claimant. While that’s not unreasonable if the business truly supported such figures, it would be an extreme amount for someone only clearing a thousand or two per month! So extreme, in fact, that it would inevitably lead to some sort of fraudulent claim. After all, why work hard for £2,000, when you can relax in front of the television with your legs up for £65,000?
Of course, the premiums for such a level of cover would be well out of reach for the person earning £2,000 per month, but insurance companies are keen that no such misrepresentation of figures occurs.
What this all means for the self-employed, of course, is that proper bookkeeping and accounting are absolutely essential. It is imperative in order to obtain the right level of income protection cover, that a realistic monthly income is able to be shown for as long as period as possible.
It’s a familiar question to anyone who is self-employed: “Do you have three years’ of accounts?” and can be very frustrating to those in the first few months of their new career path. While it is advantageous to be able to provide this in-depth analysis of your finances, when it isn’t possible you need an insurance broker who is able to understand and help no matter what the situation.
At Quick Quote Life, we specialise in obtaining income protection insurance (as well as life insurance) for the self-employed and have many experts who can help you find the right provider for your level of cover and years in business – whether or not you have those three-years of documentation. Give us a call today with any questions.
One common fear with income protection is that once you have been ill and had call to make a claim on your policy, that the pot is all used up and you will be unable to make a claim later for a more serious and longer-term condition.
If an illness returns after a recovery and subsequent return to work, then it counts as a continuation of the first claim. Insurance companies understand that some illnesses recur unexpectedly, as well as the desire to return to work occasionally pushing people to declare themselves well before they are truly recovered and accept that a second connected term may occur.
To make a clean second claim on your income protection insurance, six months must have passed (and the premium payments maintained) since the end of your previous term. Unfortunately, a second unrelated claim cannot be applied to your existing policy until this six-month grace period has passed.
Call Quick Quote Life today – or fill in our contact form to have one of our experts call you back at a time convenient to you! Our specialist advisors are well-versed in income protection policies and will be able to quickly assess your situation to find cover that is tailor made to suit you. With a wide range of insurance partners, we will be able to get you a deal that is far superior to any comparison site or quote from a single insurer. Our brokers compare options from multiple insurers and can discuss your finances and business growth to ensure you are not left out in the cold from any injury or illness.