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What is Income Protection insurance for contractors?
Contractor Income Protection is a key policy to consider for a contractor who runs their own company. This will ensure that you do not have to dip into your savings if you are unable to work. In addition, it will also help you pay the bills and avoid getting into any financial difficulties.
Notably, you do not have a safety net when you work for yourself. By this, we mean in terms of sick pay or financial support from an employer. That is until you return to work.
Income Protection is, in effect, sick pay for Contractors. This will enable you to meet your mortgage payments, bills, and lifestyle needs. In the future, there may come a time when you may need income protection for contractors if you cannot work or earn due to an illness or accident.
Other contractor policies
Besides Contractor Income Protection, there are some other financial products which are specifically for contractors. You may wish to consider these in the future:
- Contractor insurances in general.
- Critical illness cover.
Now, back to income protection insurance for contractors. When you invest on a personal basis (or via your own company) into an income protection policy, this will provide you with a level of security for the future. Importantly, you will have a safeguard to protect yourself and your loved ones.
Notably, you will require income protection if you are unable to work through illness or injury. Please bear in mind that the policy will pay you a monthly income while you cannot work. Furthermore, these policies usually consist of monthly payments and they tend to be very reasonably priced.
What to consider, regarding income protection for contractors:
In a perfect world, you will look to use a provider who has experience in the contracting market. In short, they should know:
- How contractors work; and
- Offer income protection for contractors.
Therefore, some key points to note are:
- Please make sure that the provider will include dividends in any calculations. That is to say, you must show this because they make up most of your income. In contrast, some providers consider dividends as ‘investment income’ rather than normal income. Consequently, this explains why you should seek the right provider. To sum up they should have experience in dealing with small companies and freelancers.
- Key to note, you will need to do further checks on any income protection providers which you compare. The providers should have good records of dealing with and meeting past claims. Most importantly, your financial adviser will be able to help you with this.
- Your policy must clearly state that you will receive the benefit if you are unable to carry out your occupation (as a contractor). To clarify, if you do not give your job when you apply, the provider may claim that you can still carry out a different type of work, even if you cannot perform your contract duties. Therefore, this is a crucial point to note.
- It is important that the policy covers you for the rest of your working life. Therefore, please ensure that your policy covers you until you plan to retire.
- A further final point I ensure that your policy is inflation proofed.
How Contractor Income Protection works
There are many benefits when you take out income protection for contractors cover. Most importantly, these benefits of income protection insurance for contractors include:
1 Regular income
You will receive part of your taxable income if you are unable to work when you are ill or injured due to an accident. Certainly, the income is usually between 505 and 70% of how much you pay yourself.
2 Premium Guaranteed
Your premium is guaranteed. Therefore, what you pay each month for your policy will not change even if you claim and then go back to work. Furthermore, you do not pay while you claim either.
3 Continued support
The policy will pay out until you are medically able to work again. Therefore, if you cannot go back to work, the policy will continue to pay out until you either:
- Retire.
- Pass away.
- The policy term ends.
4 Everything’s covered
When we consider how income protection cover works, it covers you for all illnesses or accidents, which means that you are unable to work. Therefore, it is about your ability to do your job, not your illness. As a result, this policy is not like other personal insurance policies.
5 Tailored to you
The contractor income protection policy will fit with your income and outgoings. Therefore, you can be confident that you are always in the clear and will meet the payments that you need to.
6 Financial Security
No matter what happens in the future, Income Protection will ensure you and your family will be financially secure. To sum up, you will not be out of pocket if you are out of action.
* Please note that this is dependent on the level of benefit taken.
Advice
Key to note, income protection for contractors is an important policy to consider, in case you cannot work in the future. Many contractors will take this out to cover themselves, should the unfortunate happen. Therefore, if you consider taking out income protection insurance for contractors, you should look for financial advisers with experience in this area and also refer to my points above.
Please complete the form below if you would like a quote for contractor income protection insurance from our expert trusted partner, Broadbench.
Frequently Asked Questions
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