Income Protection - The Best Value Insurance?

Working in a self-employed capacity provides a number of incredible benefits. From the freedom to choose when and how you work, to being your own boss, most people who try it out never go back to ‘standard’ forms of employment.

That being said, there are one or two significant negatives - most notably perhaps being the precarity of your source of income. It doesn’t need to be entirely precarious though, and there are some important steps you should be taking to protect it. With that in mind, let’s take a look at income protection insurance.

What is income protection insurance?

For those who aren’t familiar with the service, income protection insurance is a special kind of policy, typically used by contractors, company directors, self-employed and those who are otherwise without access to sick pay. It’s designed to ensure that you still receive a regular source of income, in the case that you’re not able to work, for a wide range of reasons.

The specific reasons will differ slightly depending on your exact insurance policy - typically, you’ll be able to get cover in the case that you get injured or fall ill, and, in the most serious of cases, such as an injury or illness that prevents you from ever working in your current occupation again, policies can provide an income right up until your retirement age.

Why is income protection insurance so valuable?

There are a whole host of reasons as to why income protection insurance is such good value - below are just a few of the most significant ones.

Regular payment to cover the costs of living

First, the most obvious and important benefit of income protection insurance: it provides you with a steady income to pay for your regular costs of living, even while you’re unable to work.

As a self-employed individual without this basic safeguard, if you don’t have the necessary savings, you can quickly struggle to cover things like rent payments, bills, and basic living costs, potentially leading to significant levels of debt building up. Even if you do have savings, they can rapidly become depleted, and it’s unlikely that you wanted to spend them on something like rent.

Peace of mind

Income protection insurance doesn’t just provide you with practical benefits - it also significantly reduces the stress of not knowing if you’ll be able to cover your basic necessities if you can’t find work. This is nice to know in your daily life, but if you get injured or fall ill, it can make a whole world of difference.

An increasing number of studies are being done that prove the negative physiological effects of stress - it’s not just unpleasant, it literally makes you unwell. Instead of stressing about when you can get back to work, income protection insurance allows you to fully focus on getting better, likely improving your recovery time as a result.

Highly adaptable

Finally, income protection insurance policies aren’t relatively fixed like car insurance policies - you can get them tailored to ensure that they cover your very specific personal and professional requirements.

You can generally choose how much income you want to have covered by the policy. This can’t be your full salary though and most providers will only offer policies which cover up to 70% of your normal gross income although this can be set to include income from dividends.

Policies can also be adjusted to set how long you’ll need to be off work before you start receiving payments (the deferment period), and how long the payments will continue once you stop working. As a result of these variables (and many others) you can always find a policy that’s perfect for your budget, that can provide you with the exact level of protection that’s perfect for your situation.

What kinds of cover are available?

Just as with car insurance and home insurance, there are several main different types of income protection insurance available.

Own occupation

Own occupation cover is a quite comprehensive type of income protection insurance that offers a high level of protection. With this kind of policy, if you are unable to carry out your own occupation (that is, the job that you were doing when you fell ill or became injured,) then you will receive a payout until you’re able to return to that same professional position again.

Suited occupation

Suited occupation cover is a less comprehensive option than own occupation cover. In this kind of policy, if you are unable to carry out your current role (as a result of back pain for a manual labour job for example) then you can be required to find another suited role that you would still be able to work in given your current physical and mental health. These kinds of policies are often cheaper than own occupation policies, but it’s important to note that they do not provide the same level of cover.

How much does income protection insurance cost?

As with all insurance premiums, the cost of income protection insurance will vary significantly depending on a wide range of factors. These factors will generally include your age, the state of your health, the nature of your occupation, and the level of insurance that you require. While you obviously have little control over your health, age and occupation, you can control the level of cover you choose, and any additional add-ons.

It’s important to shop around to ensure that you get the best deal possible. Often, the best way to do this is to use a specialist insurance broker, with access to all the relevant insurance providers in your specific niche.

If you’re self-employed and find that you’re concerned about losing your source of income, whether during a period of ill health or as a result of injury, then income protection insurance is definitely something to look into. It can ensure that you still receive a regular income even when you’re unable to work, allowing you to properly focus on getting better instead of worrying about paying your bills. Make sure that you shop around to get the best value for money, and get a policy that fully covers all the areas that you need.