Why income protection is critical for contractors

Whether it's to protect your lifestyle or ensure you meet mortgage payments, as a contractor, you must take out income protection.

The truth is income protection is less painful than having a tooth out -- and more likely to maintain your smile should you be unable to work!

Here's an overview of why income protection is critical for contractors, writes John Yerou, CEO of Freelancer Financials.

Put another way, here’s the benefits of income protection and the options for the most common types of income protection for contractors:

1. Income protect yourself (because you'll get little help from the government)

As a PAYE employee, you'd have received company sick pay, or Statutory Sick Pay (SSP), at least. The problem contractors face is that they don't have an employer to pay them company sick pay.

And SSP? It’s PAYE-forward, baked into a system designed for employees.

So, claiming SSP (or any type of government benefit) when you're self-employed is either arduous, fruitless, or both! And, even if you're successful, you'll likely be back at work long before any benefits come through.

Income protection for contractors ditches those systems, resulting in this simple a/b equation if you are and aren’t income-protected, respectfully:

1. contractor + income protection = continuity of lifestyle;
2. contractor - income protection = all bets are off.

2. You’ll have a safety net when illness or injury strike

'So, what?', you might think, 'I've got my savings.'

Do I need to remind you how hard you've worked to get into a position that allows you to save?

Anyway, why plunder your nest egg when you can choose, from the outset, the monthly amount an income protection policy will pay out if you're too ill to work?

The right income protection policy will:

1. Keep your cash flow turning over if you’re ill or injured;
2. Help safeguard what you've worked so hard for up till now.

A good income protection adviser will discuss your options with you before you take out a policy.

Based on this conflab, you can set an appropriate amount, so you don't have to become a victim of presenteeism. Giving yourself time to heal is just as beneficial as any prescription/pain management plan which your physician might deem appropriate!

3. Enjoy peace of mind, beyond the obvious

There are dozens of guides to income protection for contractors on the web. Some will be written by brands you know; others will be penned by names new to you.

What they'll all tell you is that, with a policy in place, you have 'peace of mind' knowing your bills are being paid while you recover. Absolutely true; I'll not argue a jot with them.

What they often omit is this: when you're ill or injured, you tend to have plenty of time to think. Would you rather be thinking about how you're going to pay your mortgage or about your diminishing savings? Or would you rather just practice mindfulness?

Proven by studies is that mental wellbeing is a huge contributor to physical healing. One of the NHS's 5 steps to mental wellbeing is mindfulness:

“Paying more attention to the present moment can improve your mental wellbeing. This includes your thoughts and feelings, your body and the world around you. Some people call this awareness ‘mindfulness.’ Mindfulness can help you enjoy life more and understand yourself better. It can positively change the way you feel about life and how you approach challenges”.

Try indulging in that when you're struggling to pay your mortgage!

4. Get more peace of mind, as our Income Protection benefits you like this…

It would not be appropriate to speak for other providers, but here are some of the benefits of our contractor income protection.

Over to our head of protection, Daniel Gibbs, who says contractors appreciate the nuanced approach of our insurance over more run-of-the-mill offerings:

“Gone are the days of providers simply sending you a BACs payment every month and letting you get over your injury in isolation. Our provider takes a much more holistic view of ‘protection’ so that you can focus on the healing process.

“As soon as you take out a policy, you become a member of their community. With membership, you also get many benefits.”

Those benefits include:

• Business Care:
  • Business legal advice;
  • Tax and VAT advice;
• Doctor Services:
  • 24/7 Remote GP;
  • Prescription service*;
  • Second opinion service;
  • Remote physiotherapy service*;
  • Remote psychological service*;
  • Discounted health MOTs;

*Terms and conditions apply.

• Personal Legal Advice Line.

“All too often in the past, if a contractor was too ill to carry out their contract, they were on their own,” recalls Gibbs. “Today, they’re part of a much bigger support network, which helps take all the stress out of being unable to work.”

How to choose the best income protection policy...

Income protection is not the same as critical illness cover. We'll cover the latter in a separate article for ContractorUK, soon.

But there are different types of income protection:

• Personal Income Protection:
  • you pay this from your post-tax earnings (from your own pocket);
  • payouts can be up to 65% of your income;
• Executive Income Protection:
  • you use your limited company to pay the premiums, which then become tax deductible;
  • payouts can be up to 80% of your annual salary and dividends combined (including dividends you pay to your spouse).

Again, we’ve got a few very good specialist protection advisers who can walk you through the options to determine which policy is most suitable for you.

Finally, who doesn't fancy a great reward for (comparatively) little outlay?

Not every limited company contractor reading this will think income protection is for them. And, good on you. I truly hope you're never in a position to say, “If only…”

But there's always that 'But', isn't there? Considering how little this type of policy costs -- especially when the premiums are tax-deductible -- why wouldn't you?

If you're not the gambling type, our protection experts can help you safeguard your lifestyle, starting today.