David Thompson is chief executive of dg mutual, which provides income protection insurance to self-employed professionals. dg mutual is one of only 9 mutual societies that offer income protection in the UK; it has no shareholders but instead pays out all its profits to the members.
Becoming self-employed is a big step to take, but it can provide many benefits such as freedom, intellectual fulfilment and flexibility. There are also financial benefits as some self-employed people earn more than they would as an employee. However, there are also higher risks and disadvantages if you are not prepared…
Recent research reveals that over five million households are not saving enough money, leaving them exposed when faced with unexpected expenditure. If a self-employed person becomes ill or suffers an injury, there is often a gap in their finances as there is no company sick pay.
It can be tough starting out on your own, but having the right financial security in place at the start can help to overcome stumbling blocks in the future.
When looking at insurance policies to protect your business, you probably have ensured your premises and customers are protected. But one thing many self-employed workers forget to insure is their own income. Help is thankfully at hand through an insurance policy called income protection.
What is income protection insurance?
Income protection insurance provides a regular tax free income if you are unable to work because of illness or accident. The benefit paid is usually up to a maximum 60 percent of your earnings.
What does it cover?
It’s not always a “serious illness” that leaves you unable to work. Even a case of the flu can damage your ability to work. Income protection covers a wide range of illnesses including the flu, infections, accidents, stress and muscoskeletal disorders. It also covers a wide range of occupations, so check each provider to see what occupations they cover.
How much does it cost?
Premiums depend on your job, gender and income. For example, a 30 year old self-employed professional earning £30,000 a year would pay around £37.00 a month and receive a monthly income of £1,650 immediately if an illness/injury struck. To help you decide on a plan that’s right for you, assess your finances to find out how much you would need if you were off work.
What are the benefits of income protection insurance?
There are many benefits of having income protection in place:
- It can reduce stress. Imagine if you were unable to work due to falling ill or suffering an injury. The last thing you need is the additional worry of paying your bills. Having an income protection policy can help to reduce stress as it provides financial security, leaving you to concentrate on getting back to full health.
- Policies are flexible. Income protection covers long and short term illnesses or injuries, so no matter why you are off work, income protection helps.
- Receive benefits as long as you need it. You could be off work for two weeks or two years, but this insurance protects you as long as necessary.
- No limit to how much you can claim. If you are out of work on more than once occasion, you can still make a claim and receive benefits.
- Some policies give you extra. If you choose a policy with a Mutual society, you will receive a tax free cash lump sum at the end of your policy as profits are divided between customers.
The state provides me with employment and support allowance so why do I need Income Protection?
Many people couldn’t survive on what the state provides as it’s currently a maximum of up to £105.05 per week. Income protection insurance is perfect to fill this gap.
How do I find the right provider?
Finding the right provider doesn’t have to be tough. Here are simple things to look out for:
- Check their claims statistics. Find out how many claims the company pays out. If a provider has a figure over 90 percent it’s usually a good sign.
- Find out how long their customers have had to wait before receiving payment. If you are off work due to illness or injury, it’s important you receive your money as soon as possible to help you continue to pay the bills and other expenditures. So when researching providers, ask how long their customers have had to wait before receiving their benefit.
- Do your research. Make sure the policy suits your circumstances. For example, do you need to receive your money straight away? If so, choose a policy without a deferment period. A deferment period is a period of time that the policyholder must wait before payment from the insurer is made. Having a non-deferment policy allows you to receive your money straight away.
When you are self-employed you often find yourself with little time to spare. However, a quick search online could help to speed up the decision making process. Have a look at independent websites such as Which? as they offer advice to help you make an informed decision. Also visit providers’ websites to get a feel for their company and their service.
Once you have researched providers and put a plan in place, remember to continually evaluate your policy to make sure it fits in with your lifestyle.
Income protection provides a financial safety net if the worst was to happen. So make sure you find a plan that suits your current circumstances and earnings. After all, you don’t want any financial stumbling blocks to stand in the way of your success.