• Home
• News
• Start-Up Guides
• Contractor FAQs
• Umbrella Company
• Limited Company
• Tax / Accounting
• IT Contractor Rates
• Contract Rate Checker
• IR35
• IT Contractor Insurance
• Money / Investing
• IT Contracts / Work
• Service Provider News
• Directory
• About Us

Income Protection for Contractors Essential cover for you and your family in case you're unable to perform your contract duties due to poor health. Read more and get a quote for Income Protection (PHI)

Contractor income protection (PHI) guide

Published on Dec 27, 2009 |

• Print this article
• Email this article

As a Contractor you enjoy all the freedom of your freelancing lifestyle but your income is solely dependent on you being fit for work. As such you risk losing money from the very first day that you are unable to get into your clients site.

With recent health scares in mind, Samantha Foster, an award winning protection adviser from IFAs Contractor Financials, explains that income protection can provide a tax free monthly income to help maintain your current lifestyle and protect your family if you are unable to work due to illness or injury.

How much income should I protect?

It is important to be realistic about the amount of money you would require if the worst should happen and you can no longer work. Whilst there is no point in over-insuring and you may be able to cut back on some areas, there will be other essentials that will need to be maintained if you are ill and suffer injury.

Income protection can offer you the opportunity to cover any of these expenses as it is possible to protect up to 75% of your income. This can give you the peace of mind to make the most of your life after an accident or illness without the financial hassles that would otherwise crop up.

You have the option to defer payments if you have savings to cover a short term illness such as a sporting injury or you can opt for a policy that will pay out the next day so that you can keep savings for their intended purpose. This flexibility means that you can tailor your premiums to an amount that you can afford and you have the option to alter your policy should your financial circumstances change.

What should I look for in a policy?

Many of the policies available via the High Street banks pay out benefits solely based on salary and won't always be suited to your income as a contractor. It is vital that you find an insurance provider that accepts your unique circumstances as a freelancer and offers a policy to suit your employment status and lifestyle.

This is one of the areas of financial planning where cost should not necessarily be the deciding factor when you choose a provider. It doesn't make financial sense to try and save a little by going with an insurer that might deter or reduce claims so ask for the claims statistics before you sign!

You should also check that dividends are covered. Many providers will shy away from covering against loss of dividends as this is too often deemed to be investment income. This is an important question to ask your provider as there is no point in you paying the premiums if you may be unable to claim in the future.

Occupation definitions

It is essential for Contractors to decide on a policy that recognises your right to receive benefit if you are unable to carry out your 'own' occupation as opposed to some lesser policies that will only pay out if you are unable to carry out 'any' occupation.

'Any' occupation definitions mean that despite your skill level and current income, an insurer could argue that you are still able to work in a supermarket, stacking shelves and therefore insist that you are ineligible to claim. This issue is often overlooked by those looking at income protection options and can often mean that a cheaper quote doesn't offer you an effective safety net.

In short it is vital that your income protection covers you specifically for what you do now.

Retirement age

You should consider the impact on your life if you were unable to ever return to work and it is equally important to guard against this with a policy that will cover you to your chosen retirement age.

In the event of a more serious illness or injury you may need changes made to your house or car in order to aid mobility or even need to employ a carer so make sure you look carefully at the date that your pension is expected to pay out because the state pension will now pay out as late as 67 for some age groups.

You may also incur penalties for taking some of your existing pensions early to cover a shortfall in your budget brought about by ill health so ensure that your income protection mirrors your retirement date.

Inflation

Something that is also often overlooked is the impact that the cost of living can have on your income level in the event of a claim.

When you take out your policy with benefits of, say, £2000 per month, it can be easy to forget that this will be worth a fraction of the amount if you come to claim in ten or twenty years' time. It is therefore important to inflation proof your policy so that the payment increases at the rate of inflation and will give you the same monthly spending power for the life of your policy.

In Summary

Contractor Financials believe that income protection is an absolutely essential safety net for contractors.

The firm has seen the benefit for those clients who have had cover in place when the worse has happened and sadly have also seen the impact on those clients who have not had this protection in place. If you are willing to insure your car, your home and your belongings, it seems sensible to also insure the income that all of these things rely on for funding.

Samantha Foster is an award winning protection specialist for Contractor Financials, who specialise in providing jargon free financial advice tailored to the needs of contractors.

For more information, or to get an income protection quote, simply fill in the form below and the team will get back to you shortly.

Contractor Income Protection (PHI) Enquiry Form