Income Protection Insurance Self Employed Explained

As a self-employed individual, you're likely no stranger to uncertainty and risk. In fact, a staggering 60% of small businesses fail within their first three years. This makes income protection insurance a crucial consideration for self-employed individuals like you.

Self-employment often means irregular income and a lack of benefits, leaving you vulnerable to financial shocks. You may not have the luxury of a steady paycheck or sick leave, which is why income protection insurance can provide a vital safety net.

But what exactly is income protection insurance, and how can it help you? Simply put, it's a type of insurance that pays out a percentage of your income if you're unable to work due to illness or injury.

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Income protection insurance is designed to cover self-employed individuals in case they're unable to work due to illness or injury.

You can choose from different types of self-employed income protection, including short-term and long-term options, which will pay out as long as you keep up with payments.

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Self-employed sickness insurance pays out if you're unable to work due to illness, and you can choose whether it replaces your income or pays you statutory sick pay.

Short-term protection covers less serious illnesses, while long-term protection covers more serious illnesses.

Self-employed income protection ensures that you don't have to worry about losing income if you're unable to work.

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Income Protection Insurance helps replace a portion of your income if you're unable to work due to illness or injury.

It's a type of insurance that provides financial support when you need it most, often paying out a percentage of your income on a monthly basis.

The amount you receive is usually a percentage of your income before tax, typically ranging from 50 to 80%.

This can be a big help in covering living expenses, paying off debts, and maintaining a similar standard of living.

Income protection insurance is often confused with permanent health insurance, but they're not the same thing. Income protection typically pays out a monthly income to cover living expenses, which is a key difference.

You can take out income protection insurance that pays out if you're unable to work due to illness or injury, and it can be tailored to cover either short-term or long-term difficulties. This type of insurance is designed to ensure you can still pay your bills even if you're not working.

Income protection insurance is not a type of life insurance, and it's not meant to pay for private medical treatment. It's specifically designed to provide a financial safety net if you're unable to work due to illness or injury.

Self-employed individuals often need income protection insurance the most, as loss of income can be particularly daunting for them. This type of insurance can provide peace of mind and help you cover living expenses if you're unable to work.

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You can cover up to 80% of your monthly income, including your salary, dividend drawdown, pension and National Insurance contributions, with income protection insurance.

This means you can protect your income up until your expected retirement age, giving you peace of mind for the long-term.

Income protection insurance is especially important for self-employed individuals, who often don't have access to safety nets like sick leave or workers' compensation.

HMRC usually sees it as an allowable business expense, meaning premium payments come from your corporation tax bill.

Here are some key benefits of income protection insurance for the self-employed:

If you're considering contractor income protection insurance, it's essential to know what's not covered. Drug or alcohol misuse is typically not covered by these policies.

Self-inflicted injuries are also usually excluded from claims. This means if you're injured as a result of your own actions, you may not be eligible for benefits.

Travel to a country with political instability, internal conflict, or an active epidemic can also limit your claims. This is a significant consideration for contractors who work abroad.

Pre-existing medical conditions are another factor to consider, but we'll cover that in more detail later.

Here's a summary of the common exclusions:

You can cover up to 80% of your monthly income, including your salary, dividend drawdown, pension, and National Insurance contributions, with a contractor income protection policy.

Income protection insurance is designed to pay out if you're unable to work due to illness or injury, and there are typically very few limitations to that.

You can opt for a policy that will pay out after four weeks of injury or illness, known as a deferred period.

HMRC usually sees income protection premiums as an allowable business expense, meaning they come from your corporation tax bill.

Income protection insurance is a tax-free benefit for self-employed contractors, as it's not considered a P11d benefit in kind.

Here are some key facts about contractor income protection:

Having a contractor income protection policy can provide you with financial security in case you're unable to work due to illness or injury.

You can protect your income up until your expected retirement age, giving you peace of mind for the long term.

A Contractor Income Protection policy covers up to 80% of your normal income if you can't work due to illness or injury. This type of self-employed insurance also protects your salary and dividend payments, alongside National Insurance and pension contributions.

You can even cover your partner's dividend drawdown, as long as they're in a non-profit generating role within the business. This is a great way to ensure your financial stability, even if you're unable to work.

To set up a policy, it's a good idea to speak to a specialist, like the partners at Sandbourne, who can guide you through everything from configuring your income protection policy to choosing the best insurer for your circumstances.

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A Contractor Income Protection Insurance policy covers up to 80% of your normal income if you can't work due to illness or injury.

You can protect your salary and dividend payments, alongside National Insurance and pension contributions. This means you'll have some financial stability if you're unable to work.

You can also cover your partner's dividend drawdown, as long as they're in a non-profit generating role within the business. This can provide peace of mind for you and your partner.

Executive Income Protection insurance is the type of policy that allows contractors to get income protection. This type of insurance can be paid for through the company.

Setting up a policy requires careful consideration to ensure you have the right level of cover.

To get the right policy, it's best to speak to a specialist, like a partner at Sandbourne, who can guide you through the process and help you choose the best insurer for your circumstances.

You can pay for an income protection policy through your company, and it's formally called Executive Income Protection insurance.

The maximum benefit amount is a crucial factor to consider when choosing a policy, as it determines how much you'll receive each month if you need to make a claim.

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The waiting period is another important aspect to consider, as it tells you how long you'll have to wait before receiving payments.

The benefit period is the length of time you can count on receiving payments if you're unable to work.

Some policies come with extra features, such as recurrent claim benefits or partial disability cover, which can provide additional protection.

Offsets can reduce your payout if you're receiving other payments, so it's essential to watch out for these.

Always read the Product Disclosure Statement (PDS) carefully before signing up for a policy.

Here are some common waiting periods for self-employed income protection:

Self-employed individuals, including business owners and freelancers, are eligible to apply for income protection insurance. As long as you're putting in around 20 hours of paid work per week, you're good to go.

There are many insurance providers who offer specific income protection insurance for self-employed workers and contractors. Some providers even offer standard income protection which covers them as well.

The coverage amount will depend on your chosen policy and your income level. Generally, income protection insurance offers regular payments based on a percentage of your earnings, up to a maximum threshold, if you're unable to work due to illness or injury.

Here are the three definitions of incapacity you'll encounter, ranked best to worst:

This will determine how unwell you need to be to make a claim, and understanding this critical part of the policy wording is vital.

Contractor income protection insurance is designed to pay out if you're unable to work due to illness or injury, and it typically covers up to 80% of your normal income.

You can protect your salary and dividend payments, alongside National Insurance and pension contributions, with this type of self-employed insurance. You can also cover your partner's dividend drawdown, as long as they're in a non-profit generating role within the business.

The policy will pay out if you're unable to complete some basic tasks, such as walking, bending, seeing, hearing, and climbing, and you can't do three or more of these tasks. This definition is so restrictive that it undermines many of the benefits of income protection insurance.

As a self-employed person, your income may fluctuate from month to month, but you can still get income protection by proving how much you earned over the last year. You can do this by calculating your annual gross profits over the last year.

Contractor income protection insurance will help cover your lost income if you're suffering from a mental health condition that deems you unfit to work. A doctor will provide you with medical evidence to state that you are unfit to work due to mental health issues.

Directors' Income Protection and Executive Income Protection are essentially the same thing, with the latter being the formal name.

You may hear people refer to it as "Sickness insurance" or "self-employed income protection insurance", but it's all designed to act as a type of sick pay for small business owners.

The contact number for more information is 01202 714178.

The office hours for assistance are Monday to Friday, 9:00am to 6:00pm.

You'll start to receive a monthly payment instead of your wages as soon as your claim has been approved by your insurer and your deferral period has passed.

The length of your policy payout period will impact the cost, so careful thought should be given to whether you need cover in the short-term or if you want something to cover you for much longer. Short-term policies typically pay out for between 1-5 years per claim, whereas longer-term policies can protect you until retirement.

You just need to be able to prove that you are unable to work, which is typically confirmation from a medical professional of the nature of your illness or injury.

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Here are some key things to know about the claims process:

The payout will continue until one of the following happens: your payment period expires, you're well enough to return to work, or you reach retirement age.