Getting income protection when you're self-employed

Owning a business and being self-employed is a challenge in itself, never mind having to juggle any curveballs life throws at you.

Although being your own boss is an advantageous position to be in and comes with its perks, it can also have its downfalls. Being self-employed can mean you miss out on some of the perks that traditional employment offers such as sick pay, maternity leave, paid holidays, and compassionate leave, just to name a few!

Income protection bridges the gap between you being financially stable or struggling financially if you are unwell and unable to work.

How does income protection work for self-employed people?

This type of financial protection acts as a helping hand if you are unable to work due to illness or injury. When a successful claim has been made, this policy offers monthly tax-free payments which equate to a maximum of 70% of your monthly income and are paid to you each month. Many clients choose to cover around 50-60% of their monthly income as this is both an affordable and practical option.

Income protection for those who are self-employed acts as a shield against becoming financially unstable when you cannot work due to illness or injury. This policy is designed to help you keep up with paying for your essentials such as bills, childcare, and rent or mortgage payments.

Why should you get advice?

Policies such as income protection offer an advanced level of protection but when it comes to sourcing material on these policies, the internet can provide what feels like an overload of information, meaning it can be hard to differentiate between the good and the bad information.

When we asked our protection specialists what their tips and tricks were when looking into financial protection, they had this to say, “Get advice from a recognised broker and protection specialist. By speaking to a professional, they can conduct market research on your behalf, explain definitions given by specific insurance providers, and help you to accurately disclose your medical history. We take the time to understand your circumstances and make easy-to-understand recommendations on the right life insurance policy for you. We ensure that you are not over or under-insured and we remain a point of contact should your circumstances change and your policy needs to be reviewed.”

How to prove your income

As a self employed person, your income may fluctuate from month to month but when looking into income protection which is a policy that revolves around your income - being able to prove what you earn is essential. Having a varying income will not stop you from being able to get income protection, you just need to prove how much you earnt over the last year.

You can do this by calculating your annual gross profits over the last year. It is good to have this information on hand as you may be asked about it on the phone by your protection specialist.

What does income protection not cover?

This policy pays out if you are unwell or injured, supporting you financially if you are unable to work. You cannot claim on your income protection policy in the event of your termination or voluntary resignation.

What conditions does income protection cover?

One of the biggest advantages of having income protection is that it covers pretty much any illness or injury so unlike critical illness insurance, there is no specific list of illnesses that the policy pays out for. However, it is worth noting that you may have unique exclusions on your policy that are specific to your circumstances which your protection specialist would advise you of.

The main element you need in order to claim on your income protection policy is proof that you are unable to work due to illness or injury from a medical professional - for example, a signed note from your GP.

Income protection claims process

Put simply, you need confirmation from a medical professional that you are too ill to work.

The claims process for income protection is similar across most providers, you just need to be able to prove that you are unable to work which is typically confirmation from a medical professional of the nature of your illness or injury.

Additionally, our Caspian claims team is on hand to assist you with your claim in any way possible. Whether you just need to hear a friendly voice, have queries about your claim or the process - we are here for you.

What’s with all the jargon?

People are sometimes put off from looking into different types of financial protection as it can feel like an overload of information but there are so many positives to getting a more sophisticated life insurance product such as income protection. This policy brings about phrases which you may or may not have come across before - either way, we are going to go through what a few of those words mean!

• Deferred period = The period between you first becoming ill and when the premiums from your income protection policy begin being paid to you. This can range from as little as 4 weeks, all the way up to 52 weeks. The longer your deferment period - the more affordable your policy could be. Payout length = The amount of time your policy will pay out for, income protection typically pays out either until you retire or pass away (whichever comes first).
• Term length = This is the amount of time which you are covered for from your policy. With income protection, we typically advise that you are covered until you reach the age of retirement, as this ensures you are protected for the entirety of your working life. When your term length ends, your policy ceases to exist!
• Incapacity definition = There are three different types of incapacity: own occupation, suited occupation and activities of daily living. Depending on which definition of incapacity you choose will define the level of cover you will receive so it is essential that you make sure you choose the right one, your protection specialist will advise you on which is best for your circumstances.

Is self-employed income protection insurance tax-deductible?

If you are a sole trader working for yourself, you are not able to claim your monthly income protection premiums as a business expense so they are not tax-deductible.

However, if you make a successful claim on your income protection, then your monthly payments would be tax-free as any payments you receive from this policy are always tax-free.

Key takeaways

• Financially protecting yourself with an income protection policy is borderline essential when working as a self-employed person, especially if you are without savings and have dependents.
• If you want to see how much your income protection policy could be before speaking to one of our protection specialists then click here to try out our brand new income protection calculator. This handy tool we created provides you with a guideline on how much your monthly premiums could be, in as little as 30 seconds!
• When delving into the world of income protection, it is crucial to ask yourself if without benefits such as sick pay, would you be able to afford the essentials if you were unable to work?
• Seeking guidance from professionals is crucial when searching for life insurance. At Caspian, our advisors have over 200 years combined experience in the industry so you would be in capable hands.
• If you are looking for a more in-depth look at this type of policy, click here to read our latest blog summarizing all things income protection!