The importance of self-employed income protection

SmallBusiness.co.uk discusses income protection cover and the surrounding issues.

Few areas of insurance are subject to perhaps quite as many misconceptions as that of self-employed income protection.

Although specialist providers of policies such as Drewberry Insurance offer such cover, some potential policyholders are not entirely aware of why it might be advisable to have such protection.

Let’s consider at least some of the issues.

The limitations of state aid

Some people believe that if they are self-employed and are unable to earn income due to things such as sickness or critical illness, that somehow the state will step in fill the breach.

Unfortunately, the reality is that state aid may be extremely limited. Space doesn’t permit a full discussion of current state benefits but if you examine them, you may be surprised at how small are the amounts of money that might be available.

If you are unable to continue working, you may find that very quickly you are unable to meet your bills and perhaps even your mortgage. Some of your individual creditors may be understanding, for a short period, yet they might all move relatively quickly to legal action to recover the sums due or in some cases, to the repossession of your property and goods.

Income protection cover

This type of policy allows you to continue to receive a regular monthly income in situations where your health does not permit you to continue working.

The amount you receive each month might be related, of course, to the type of policy you have purchased and the cover you have paid for.  Yet it may be a sum that is a considerable percentage of your previous monthly earnings.

Each month that income may be something that allows you to continue to live a relatively normal financial life. The payments will continue up until the time you are fit to return to work, you have reached your normal age of retirement or you have reached the maximum period of cover provided by the policy you have purchased.

Qualifying conditions

Typical policies of this nature cover circumstances relating to certain severe illnesses and perhaps an inability to continue working due to an accident. It might also be possible to add limited-period cover for some forms of unemployment.

It is worth looking out for a significant difference in terminology between policies that work on the basis of own occupation and those that define things as being based around suitable occupation.

In the case of the former, the policies will typically pay out if you are unable to continue in your regular activities. In the second case, policies that operate on the basis of suitable occupation may expect you to take some other form of position if it were offered to you, providing that it generated income.

As you might expect, in order to make a successful claim, it may be necessary to support your position through the provision of medical evidence etc.

Could it happen to you?

It might be unwise for anyone to take good health for granted.

Nobody can be entirely certain what might happen to them in the immediate future and the question to ask yourself really is, could you cope in terms of your regular outgoings if you lost your income? If you answer that question with a negative, you might need to consider income protection cover.

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