Guide to Income Protection Insurance for IT Contractors
- Sick pay for contractors – This will pay you a monthly income if you suffer an illness or accident which prevents you from working for a prolonged period
- Pays a monthly income after your chosen waiting period
- Will carry on paying you until you’re well enough to return to work or until retirement
- You can protect up to 60% of your gross taxable earnings – salary and dividends
- CMME will find you the right policy to suit your individual circumstances
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Whilst permanent employees have often the benefit of at least 3 months’ pay in the event of an accident or illness, as a contractor you are exposed to a potential financial loss the first morning that you are unable to arrive at your clients’ site. There are ways to protect yourself in this situation.
You can preserve your current standard of living by paying monthly for an Income Protection plan. These policies will support you financially if you are unable to work for an extended period due to an accident or illness.
We will clear up some of the confusion that surrounds this type of protection and cut through the jargon. For those that already enjoy the protection of this type of cover we provide a free review service to ensure that your current cover is suitable for a contractor and suitable for your own specific circumstances.
Income Protection can replace a large portion of your earnings after a waiting period of your choice – it’s a bit like an excess on home insurance, but instead of this being a monetary amount, it’s a period of time that you’re happy to support yourself before the cover needs to kick in. The longer the waiting period, the cheaper the premium but the longer you must wait before the insurer would start paying you. The defer periods typically range between 4 - 52 weeks. Your Adviser will discuss which period suits your needs best after discussing this in more detail with you.
If you have a ‘rainy day’ fund to pay your bills over the short term, then you may choose to take a longer waiting period to keep the cost down.
A suggestion for contractors who currently have limited access to funds is to take a short waiting period initially but possibly extend this as savings grow.
It is possible to protect up to 60% of your income. Try to be realistic when looking at the figure you would need if you were unwell. Whilst it is fair to say that you may be able to cut back on many areas if necessary, there will be some areas that will come more sharply into focus. To retain a car for mobility, pay for help at home or change your property may be really important. Although this can be depressing subject it is one that needs to be addressed. Comfort in ill health can often be a question of relative financial health and you want to get back to good health without financial worries.
There are multiple Income Protection policy variations on the market but the reality is that so many of these just do not work for contractors or are substandard policies with hidden exclusions.
Lots of things need to be taken into consideration such as the claims history from the provider and their financial stability but also more contractor specific concerns such as what does the provider deem as income, how will they view your claim if you’re between contracts when you fall ill and what support with they give you to get back into work when you’re well again?
Obviously, cost is very important, but the provider and product you choose is almost as important as a policy which doesn’t pay out when you need it, is as useless as not having cover at all!
Your Adviser will ensure that not only is the policy well priced but from a provider with an outstanding claims record who understands how you work.
Looking at the potential impact of you never being able to return to work as you know it in the event of a serious illness such as a stroke, you should always ensure that a policy covers you to your planned retirement date.
ContractorUK are not authorised to offer regulated mortgage advice. ContractorUK are introducers to CMME.
Your home may be repossessed if you do not keep up repayments on your mortgage.
CMME is a trading name of CMME Mortgages and Protection Limited. Authorised and regulated by the Financial Conduct Authority (FCA reg. 414798). Registered in England No. 04886692. Registered Office: Albany House, 5 Omega Park, Alton, Hampshire, GU34 2QE. Please be aware that Commercial Mortgages, Overseas Mortgages and some Buy To Let Mortgages are not regulated by the Financial Conduct Authority. Calls may be recorded for training and security purposes and to improve the quality of our services.