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Income Protection for the Self Employed

 

income protection for the self employed

You and I have a lot in common.

Like me, you’re self-employed, or your partner is.

Like me, you’ve taken a risk by forfeiting a cushy role as an employee where you had the comfort of a regular income.  You’ve left behind benefits like income protection and death in service.  And you waved goodbye to illness benefit from the state should you get sick.

Are you CRAZY? 🙂

You probably miss the regular income the most, but you can’t do anything about that.

But you can do something about making sure you have a regular income in the future if you fall ill or have an accident that stops your working.

In your former life, you could rely on the government for a helping hand in the form of a disability allowance.

It’s only €203 per week but still, better than nothing.

But now you’re self-employed, you get nothing, nowt, zilch, zero if you can’t do your job.

That’s why income protection is essential.

Essential, as in, if you don’t have it, you’re

Look, I get it.

You know you should protect your income, but you just can’t seem to pull the finger out and get it sorted.

I understand this completely because I took the same calculated risk when I started, so it might be useful to look at the justifications we give ourselves for putting income protection on the long finger.

We put it off because we can’t afford it, or we could save the money instead, or we didn’t understand it, or we hadn’t time to arrange it, or we didn’t think it would payout, or our health wasn’t great, or we thought self-employed people couldn’t get it, or….you get the picture.

But we know, deep down, that these were all just excuses.

If we fall ill (especially if we’re the breadwinner), we’re fucked, plain and simple, and so are our families.

So isn’t it time to put on your big boy/girl pants and get your house in order?

Here are the reasons I dilly-dallied on income protection.

Do any of them ring a bell?

Self-Employed Income Protection Procrastinator

1. I couldn’t afford it

But thinking of the worst-case scenario, I knew I couldn’t afford NOT to have it.

I imagined I was in a car accident; multiple injuries meant I couldn’t work for 18 months. My income dropped to zero, but the bills kept coming in. I imagined the panic, the fear. Three babies who depended on my income for everything, and I couldn’t provide. A supportive wife who said all the right things, but I knew I let her down because I didn’t protect myself against the biggest risk my family faced – the loss of my income.

You can afford some cover.

You may not be able to afford gold plated cover right now, but you can afford some cover.

Start small and put something in place. You’ll be surprised how affordable income protection can be if you insurer enough to cover the mortgage and essential bills, choose an early ceasing age and extend the deferred period.

Don’t forget you get full tax relief on your premiums. And even better, your company can pay your premiums if you’re a Director without triggering a BIK liability.

2. I could save money instead

Ha, savings.

I was barely getting by, so putting a couple of hundred euros away per month was a non-starter.

And even if I could, I knew how long it would take me to save a worthwhile sum.

FOREVER.

But illness wouldn’t be kind enough to wait for my savings to accumulate before it knocked on my door.

It could happen at any time.

3. I didn’t understand it

You might find this hard to believe, but I really hadn’t got a clue about how income protection worked when I became self-employed. My background was in mortgages.

And back then, there were no useful life insurance blogs (ahem) that explained this stuff in plain English. In fairness, that was a bit of a Eureka moment for me. As I learned about income protection, I wrote blogs so I could teach others.

And here I am – still writing!

At its core, income protection is simple:

If you can’t do your job due to any accident or illness (excluding pre-existing conditions) for longer than your chosen waiting/deferred period, the insurer will pay you a replacement income until you get back to work or reach your chosen retirement age.

That’s the basics – you can learn a lot more in our blog’s income protection insurance category.

4. I hadn’t the time to arrange it

Yeah, I had three babies, new business, busy, busy.

I get it; starting out self-employed is crazy. But it would be best if you protect yourself against the “what ifs” because while you’re laser-focused on sales and marketing, you might get blindsided by an unforeseen, catastrophic event that puts your business on hold. At the same time, you deal with a long term condition.

Especially with COVID19, stress is on the rise, especially among the self-employed. Mental breakdowns are, unfortunately, commonplace.

Anyway, how long does it take to get a quote and complete an application form online?

Even simpler, you just need to fill out this questionnaire, and I’ll do the rest over email that you can read and reply to at your leisure. Protecting yourself doesn’t have to and shouldn’t eat into your working day. It’s an after-hours thing, but you have to take the first step. I can’t force you.

5. I didn’t think it would payout

They’ll find some way to wriggle out of paying, the swines!

Remember, I was new to this whole income protection game, so I felt the same.

It’s all a scam, they never payout.

I had made a house insurance claim before and got refused, and friends had trouble with car insurance claims. I thought life insurance providers were the same.

They’re not, and you can choose to believe this or not, but they actually welcome claims and want to pay them. Otherwise, there’s no need for anyone to have a cover.

Income protection providers pay around 90% of claims (or 100% of valid claims). The 10% they decline are due to

  • non-disclosure (lying on the application form)
  • claiming the end of the deferred period and getting back to work before the deferred period ends

Here are the latest payout statistics from one of our providers.

The average age of a claimant being 47 surprised me. That’s not much older than yours, truly.

IP Claims 2019

6. My health isn’t great

Ok, let’s get this out of the way.

Pre-existing conditions are likely to be excluded from your policy.

If you’re on medication for stress/anxiety/depression, you will have a mental and functional health disorder exclusion on your policy.

If you suffer from continuous back pain and are on painkillers, you will have a back/spinal exclusion on your policy.

But you’re covered for everything else.

For minor issues like a high BMI, at worst, you’ll face a premium increase, but you’ll still get full coverage.

7. Contractors can’t get income protection

If you’re a self-employed contractor, you will qualify for income protection because you’re in a permanent role on a self-employed basis.

We’re all self-employed contractors when you think about it.

Take me, for example. I secure a new “contract” every time a client takes out a policy with me, but if nobody takes out a policy for three months,  I’m in the same position as a contractor who doesn’t work for three months.

If I fall ill, my income protection will still pay out, but the insurer will assess the payout based on my previous 12 months income.

An example may clear it up:

John is an IT contractor, and he has worked without a break in contract for three years @ €60,000 per annum.
His pre-disability income was €60.000
His income protection payout will be 75% of €60,000 = €45,000

Jim is an IT contractor but hasn’t earned for the last three months, so his pre-disability income was €45,000
His income protection payout will be 75% of €45,000 = €33,750

The insurer will calculate your payment based on your 12-month pre-disability income.

You see, we all have excuses.

What’s covered by self-employed income protection anyway?

Income protection insurance pays you a monthly income if you can’t do your job due to any illness or accident.

A, N, Y; THREE small BUT IMPORTANT LETTERS

Income Protection for the self-employed will payout for any illness, injury or disability that stops you from doing YOUR JOB (not any job).

How does it work?

Let’s take the fictional example of Sinead, who is a self-employed IT consultant working in Ireland.

In the last tax year, she earned a gross salary of €100,000 (P60) earnings)

After reviewing her monthly expenditure, she decides to insure 75% of her annual earnings, totalling €75,000 or €6,250 per month.

Two years after taking out her policy, Sinead suffers a type of cancer that prevents her from working for four years whilst undergoing treatment.

Sinead selected a deferred period of 6 months.  She received €6,250 at the start of the 7th month. Over the four years she’s out of work, Sinead receives 42 monthly payments of €6,250, totalling €262,500.

Sinead can focus all her energy on getting better without financial worries.

How much can I insure?

Using income protection for the self-employed, you can insure up to 75% of your gross (pre-tax) earnings.

But you don’t have to insure the full 75%.

You should look at your expenses first (mortgage, bills, food) to determine how much cover you need.

Do I have to prove my income?

Not when you apply, but if you make a claim, the insurer will look for evidence that your income at that time supports your claim.

So, if your earnings fall, it’s important to contact the insurer and reduce your cover because the insurer will never payout more than your earnings at the date of your claim.

It’s important to note that some insurers will average your income over the previous three years.

Others will only look back over the previous 12 months.

You should take this into account when choosing an insurer if your income isn’t regular.

But I’m healthy. It’ll never happen to me.

  • One in three people in Ireland will develop cancer during their lifetime.
    Source: Irish Cancer Society, Central statistics office June 2013
  • An estimated 30,000 people are living in the community with disabilities as a result of a stroke.

Michael, a recent claimant, thought it would never happen to him but “having the policy meant everything” when he found he needed it.

Here’s a snippet from his story:

I’d been self employed for about twenty years and never really had a day’s sick in my life. I felt in good health but developed what I thought was a groin strain from playing football and thought nothing of it. Being a typical male…I put off doing anything about it.

I eventually went to a local physio who concurred with me but sent me for an x-ray when there was no improvement after six weeks. The x-ray showed up what doctors term a ‘hotspot’ on my pelvis (an area of increased density on an x-ray) and referred me to a GP. A further scan in St. James’s hospital showed up a cancerous tumour in my pelvis. That was the start of three years off work while I received treatment. I underwent radiotherapy and chemotherapy.

If you have cancer and you’re in and out of hospital, the last thing you want to worry about is how am I going to pay the mortgage, the household bills? When you’re not able to work, you feel threatened. Having an income protection policy kick in meant I could concentrate on getting better. Without all the added financial worries of not having an income.The application process was straight forward, the staff in the insurer were supportive at all times. I had a dedicated contact person who was great to deal with.

All I had to provide was a report from the consultant and the occasional update. I am such a fan of the product now I tell everyone who will listen not to hesitate in taking out this valuable cover. So my advice is don’t hesitate. I thought it would never happen to me.

Over to you…

As you got this far, I’m hoping you’re at least considering income protection.

So many self-employed people read this post; unfortunately, some of them are going to get sick.

I hope it’s not you, I do, but there is a chance.

Take this opportunity to get your house in order and arrange income protection. If not with me, that’s grand, just buy it somewhere.

If nothing else, it’ll give you a great night’s sleep knowing your family are financially safe should the worst happen.

If you are considering income protection and don’t have a trusted advisor, I would love to help you.

Complete this questionnaire, and I’ll be right back over email with advice and quotes on policies from the following insurers for you:

There are differences between the providers, so please take some advice before choosing or at least reading this blog comparing income protection providers in Ireland.

If you’d like a chat to discuss your options, you can open my diary and schedule a call here.

Talk soon!

Nick

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Income Protection Insurance
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