Income Protection Insurance for freelancers

4 min
Published on updated on

Whilst permanent employees invariably have the benefit of at least 3 months pay in the event of accident or sickness, as a freelancer you are exposed to financial loss the first day that you are unable to provide work for your clients. There are ways that you can protect yourself from hardship and one of the main ways to do this by investing in Income Protection Insurance for freelancers.

Benefits of Income Protection Insurance for freelancers

  • Sick pay for freelancer, that pays out if you suffer an illness or injury that prevents you from working

  • Pays a monthly income after a waiting period

  • Policies are arranged based taxable earnings

  • Can pay out an income until retirement if you are unable to return to work

  • You can protect up to 70% of your earnings

  • Freelancer Financials will find you a policy to suit your individual circumstances

Read about this vital protection and fill in our Critical Illness Cover Finder to find out more.

What is Income Protection Insurance?

Income Protection Insurance is essentially insurance that will pay out if you are unable to work due to illness or disability. As a freelancer, you don't have the luxury of being protected with sick/illness pay by your employer as employees do. Therefore, it's highly recommended that freelancers seek out an income Protection Policy should the worst happy.

The Income Protection Insurance Policy

You can preserve your current standard of living by paying monthly for an Income Protection plan. These policies will support you financially if you are unable to work for an extended period due to accident or illness.

We will clear up some of the confusion that surrounds this type of protection and cut through the jargon. For those that already enjoy the protection of this type of cover we provide a free checking service to ensure it still meets your needs.

A provider of Income Protection can replace a large portion of your earnings after a waiting period of your choice (you may come across a term used to describe this waiting period – as a deferred period). The longer the waiting period the cheaper the premium but the longer you must wait before benefits come into payment. The waiting periods can typically be 4,13,26 or 52 weeks. Your adviser will discuss which period suits your needs best. If you have a ‘rainy day’ fund to pay your bills over the short term then you may choose to take a longer waiting period to keep the cost down.

A suggestion for freelancers who currently have limited access to funds is to take a short waiting period initially but possibly extend this as savings grow.

Protecting yourself as a freelancer

It is possible to protect up to 70% of your income.Try to be realistic when looking at a figure that you will need so you be unwell. Whilst it is fair to say that you may be able to cut back on many areas if necessary, there will be some areas that will come more sharply into focus. To retain a car for mobility, pay for help at home or change your property may be really important. Although this can be a depressing subject it is one that needs to be addressed. Comfort in ill health can often be a question of relative financial health and you want to get back to good health without financial worries.

Whilst deciding which provider to choose it is just as important that the company has a good track record of meeting claims as pricing. Delays in or worse still attempts to limit or avoid payment of benefits in the event of a claim are frustrating and very unfair. Your Adviser will ensure that not only is the policy well priced but from a provider with an outstanding claims record.

Another essential point that is crucial for freelancers is that the policy needs to include the definition that you receive payment if you are ‘unable to carry out your own occupation’.This contrasts to a lesser definition that, if ill you must be ‘unable to carry out any occupation’. As a highly skilled individual you need this tighter definition to ensure when you most need assistance it will be there for you.

Looking at the potential impact of you never being able to return to work, you should always ensure that a policy covers you to your chosen retirement date for instance age 60 or 65. You must look carefully at the date that your pension is expected to pay out and you may suffer significant penalties for taking some of your existing pension early.

Particularly important in the event of a longer-term claim is the impact of the cost of living on your chosen benefit level. It is essential to inflation proof your benefit. £2,000 per month will have less spending power in 10 years time. It is possible to maintain the value of your benefits by ensuring that the amount insured increases by a set amount each year. Be realistic when agreeing this figure with an advisor - it is important that the figure is high enough to be of value to you in the future if you were claiming.

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