Insurance, Tips & Guides

A Financial Safety Net: Consider Income Protection if you are Self-Employed

July 24, 2024

Are you self-employed and don't have income protection? We'll discuss the importance of income protection so you can make an informed decision.

What is Income Protection?

This is an insurance policy that pays you a regular income if you can’t work because of sickness or disability and continues until you return to paid work or you retire. Income protection insurance is also known as permanent health insurance.

The amount of income you are allowed to claim will not replace the exact amount of money you were earning before you had to stop work. You can expect to receive about a half to two-thirds of your earnings before tax from your normal job. This is because some money will be taken off for the state benefits you can claim, and also the income you get from the policy is tax free.

1. The Self-Employed Conundrum

Being your own boss is like having a backstage pass to life—it’s exhilarating, liberating, and sometimes a tad nerve-wracking. But here’s the twist: Unlike our 9-to-5 comrades, we don’t have the safety net of company sick pay. Nope, when we’re down for the count due to illness or injury, it’s like playing a high-stakes game of financial Jenga. One wrong move, and the whole tower wobbles.

561,000 Workers sustained a non-fatal injury according to self-reports. 124,000 of these resulted in being off work for over 7 days.

Labour Force Survey in 2022/23 (LFS)

2. Enter Income Protection: Your Financial Safety Net

Income protection insurance—think of it as your trusty sidekick. When life throws you a curveball (or a particularly nasty flu), income protection steps in. Here’s how it works:

Regular Monthly Income: If you’re unwell and can’t work, income protection ensures you keep receiving those precious pennies. Bills? Covered. Groceries? Sorted. Netflix subscription? Well, priorities, my friend.
Life Continues: Income protection isn’t just about the moolah. It’s about maintaining your lifestyle. You want to focus on healing, not stressing about overdue bills or missed mortgage payments. Plus, it’s like having a financial hug during tough times.
Support to Get Back on Your Feet: Picture this: You’re recovering, and your business needs you. Income protection doesn’t just hand you cash; it also offers support to help you bounce back. Whether it’s rehab, vocational training, or a motivational pep talk (we’re great at those), we’ve got your back.

3. The Deferred Period

Ah, the deferred period—the waiting room of income protection. It’s like being in line for the coolest roller coaster, except this one involves money. Here’s the deal:

Choose Wisely: When you take out your policy, you get to pick how long you’ll wait before the first payout. It’s like choosing between instant coffee (short deferred period) and a slow-brewed artisan latte (long deferred period). The choice is yours.
Patience, Grasshopper: The deferred period can range from 4 to 104 weeks. Ask yourself: How long can you hold your breath underwater? Okay, maybe not that dramatic, but seriously—consider your financial lung capacity.

The longer your deferred period, the cheaper your monthly premiums will be.

4. How Much Is Enough?

The million-pound question: How much income protection do you need? Well, it’s not quite a million pounds, but it’s crucial nonetheless. Here’s the math:

Calculate Your Essentials: Add up your mortgage or rent, utility bills, groceries, and other must-haves. That’s your baseline.
Factor in Business Survival: If you’re a business owner, think about keeping the ship afloat. Business expenses, anyone? Income protection can help you steer clear of rocky waters.

Important:

The number of new individual claims paid is around 98%. In the majority of the declined claims, customers had not disclosed important details about themselves or their circumstances to their insurer when they took out the policy.

Sources:

Further help and guides:

6 Essential Documents You Need for a Mortgage Application – click here.

Self-Employed? How to Secure a Mortgage – 4 key steps to consider ! – click here
A First-Time Buyers Guide – 7 Easy Steps – click here.

Josh Parrott

With 4 years of experience in the mortgage sector and a prior 5-year background as an estate agent, Josh combines modern expertise with a commitment to client satisfaction. His expertise includes Buy-To-Let (BTL) mortgages and assisting clients with adverse credit histories.