Can I get income protection if I am self-employed?
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I’m self-employed and a higher rate taxpayer. I have a young family to support so I want to take out some sort of insurance that would pay me an income if I fall ill and can’t work. Can I do that while being self-employed?
Phil Beck of Smith & Pinching responds:
Income protection policies provide an income for you if you are unable to work and it is certainly possible to take out such a policy if you are self-employed.
The basis for most income protection plans is your capacity to work, so the policy will normally cover all illnesses and injuries (mental and physical) if they mean that you cannot work. However, you should look carefully at the terms of a policy to see what exclusions there may be to the cover, such as pre-existing medical conditions.
Your normal self-employed income may not follow a regular pattern, so benefits paid as a simple percentage of regular income may not be appropriate. Many providers will offer an income protection policy aimed specifically at those who are self-employed and will require you to select the level of income you need, based on a percentage of your average earnings, perhaps. Of course, the more cover you want, the higher the premiums will be.
You will need to set up a 'deferred period' – the amount of time that you have been unable to work before the cover will kick in – which might be anything from four weeks to a couple of years, depending on what emergency reserves you can count upon. Premiums will also vary depending on your age, your health and the type of work you do.
You may find it particularly helpful to go with a provider who has a range of support services to back up the cover. These might include medical helplines and support for your recovery and recuperation. Some policies will provide additional payments if you are hospitalised, become terminally ill or if you were to die.
An alternative type of cover is critical illness insurance. This provides a lump-sum payout if you fall ill with an illness that is listed in the policy at a specified level of severity. It doesn’t cover all circumstances but can be useful in providing a cash injection at a time of particular financial stress.
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I recommend you discuss your specific requirements with an independent financial adviser to ensure you get the cover you need.
Any opinions expressed in this article do not constitute advice.
For more information, please visit www.smith-pinching.co.uk