If you recently started working as an independent contractor, you are most likely experiencing its many perks – you work for yourself, you earn more, you enjoy more tax incentives, and you manage your own time. While the benefits of working on your own are attractive, there are equally significant drawbacks that you need to prepare for under this setup.
On top of these disadvantages is the lack of income security if you suddenly become sick or unfit to work. If you are still employed, your salary would not be affected even if you miss a couple of days of work.
You may also receive additional financial support in case of severe injury or accidents. But none of these assurances are available if you work alone unless you protect yourself and invest in a Contractor Income Protection Insurance Policy.
What is Contractor Income Protection and Why is it Important?
Contractor income protection is a type of insurance policy for independent contractors who intend to protect their income. Through this plan, you are guaranteed as much as 70 percent of your gross income to cover your regular expenses such as groceries, bills, and mortgage should you unexpectedly find yourself unable to work.
This insurance coverage is crucial as it can help you address your financial needs from household bills and rental payments to childcare and medical costs if you suddenly get sick or injured. This plan is particularly vital if you are the sole breadwinner in your family.
You may be young and fit to work now, but before you dismiss the need for contractor income protection, you should first consider the following facts:
- 25 percent of the 100,000 strokes in the United Kingdom every year occur in people of working age;
- 50 percent of individuals in the UK will have cancer; and
- Almost 1.5 million working individuals experience work-related illnesses in the UK.
The information above clearly shows that it makes sense to be ready, and it is prudent to invest in a protection policy that could shield your family from financial burdens.
What are the Things You Need to Consider in Income Protection Insurance?
Instead of availing the same contractor income protection policy of someone you know, you should invest in a plan that fits your requirements. Note that just because you are all self-employed does not mean your lifestyle and financial obligations are similar. Below are the things to consider when getting an income protection policy:
The Level of Income Protection
You need to seriously ponder how much of your income do you want to protect since it will determine the amount of pay-out you will receive from your insurance provider when you can no longer work. Note that the higher the percentage of protection, the more expensive the policy. While the expense is worth it, you may want to break down your expenditures if you are no longer working to determine how much of your salary you wish to retain.
The Start of the Claim Period
Apart from the amount of coverage, it would help if you also thought about the timing of the insurance pay-out. While you can reduce your premium by opting to set a specific period to start claiming, you are better protected if you choose to be covered at the beginning of your policy. Note that since you never know when accidents or severe illness may happen, it is best always to be ready.
The Length of the Coverage
You can choose between short-term or long-term coverage. The former covers a portion of your income for several months until you are ready to go back to work while the latter can last until retirement. Weigh the significance and choose one that best suits your circumstances.
A contractor income protection policy is a worthwhile investment, given that it will ensure that you still have enough income even if you get sick and need time to recover. This type of policy allows you to enjoy the benefits of being your own boss while mitigating the disadvantages of this setup. Find a trustworthy financial adviser who will help you find the best policy for your requirements.