When you’re self-employed, income protection is vital. You’ll need to look at your work history and decide on your level of cover, a suitable waiting period and what benefits payments you would need. When it comes to running your own business or being self-employed, income protection insurance can be vital since you don’t have the usual benefits of annual, personal or sick leave that are provided when working for another company. If you are unable to work or run your business, whether you’re a builder, a bookkeeper or a salesperson for CMMS software, what will happen to your cashflow? If you’re worried it will cease altogether, income protection insurance is a good way to substitute your cashflow should you suffer an injury or illness.
Most of the time, insurance providers will require you to have been self-employed in your industry for at least 12 months before they allow you to sign up for income protection insurance. However, if you have been self-employed for less than 12 months, but you have been working in the same industry prior to that, you may still qualify for indemnity insurance (see below). Once you’ve reached the 12-month self-employed threshold, you can then switch your level of cover (if you wish) to an ‘agreed value’ form of insurance.
If you’re not earning big bucks (or if you’ve been self-employed for less than 12 months), you may want to opt for an indemnity policy, which is often cheaper than an ‘agreed value’ policy. Indemnity insurance means that you pay lower premiums, but when you make a claim, your income is assessed at the same time. Essentially, this means that your fluctuating income will affect your benefits payments (whereas agreed value policies pay your benefits based on your income at the start of the policy and are not affected by fluctuations). Indemnity insurance is a good way of saving money if you find you’re at a low risk of injury or illness.
Your waiting periods, along with your age, occupation, hobbies, health and benefit periods, will have a large impact on your insurance premiums. You can choose from cover starting after 2 weeks, or you can choose a waiting period of 2 years. Self-employed or contract workers, for example, may opt for short waiting periods, whereas those in corporate companies may find they can afford to wait 2 months since they can make use of sick leave and annual leave payments. Bear in mind though, it can also take extra time for an insurance company to process and approve your claims.
Make sure you choose your benefit periods wisely when signing up for income protection. You can choose to be paid benefits for 3 or 6 months, up to 5 years – or even benefits that will last until your retirement at the age of 65. You’ll need to assess your occupation, level of risk and how much your situation would deteriorate if you were sick or injured. An executive assistant, for example, may be able to get back into the workforce by working from home as a virtual assistant, whereas a doctor does not have this flexibility. If a labourer is injured, he/she may not be able to work altogether. Generally speaking, most people choose benefit periods of around 5 years or less. Of course, your benefit periods will affect your premiums, too, so choose something that you can afford but that aligns with your overall financial situation, both now and for the future.
Stay tuned to BellTheBull Blog for more on income protection insurance.Google+