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Income Protection for the Self Employed

January 23 2019 8 min read Blog Income Protection

 

income protection for the self employed

You and I have a lot in common.

Apart from being so damn pretty.

Like me, you’re self employed…(or unemployed and bored, why else are you reading this blog post?)

Like me, you’ve taken all the risk – maybe left a cushy role as an employee where where you had the comfort of knowing how much you would get paid every month. You left behind benefits like income protection and death in service. And you waved goodbye to illness benefit from the state should you get sick.

And, like me and “she that must not be named”, you may have felt like this just before you handed in your resignation:

I’m sure income protection isn’t the benefit you regret leaving behind  (regular income is) but it’s the most important because if you fall ill..

YOU’RE ON YOUR OWN SUNSHINE!

As an employee you could rely on the government for a helping hand in the form of a disability allowance.

It’s only €198 per week but still

But me and you (you and I?) get nothing, nowt, zilch, zero if we can’t work.

That’s why income protection is essential if you’re self employed.

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

You know you should insure your income but you just can’t seem to pull the trigger and get it sorted. And while I understand this completely – I took a risk and went without income protection for a time when I started out – I think it’s useful to look at the justifications we give ourselves to put it off.

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

But I knew, deep down, that these were all just excuses. If I fell ill, I was fucked, plain and simple and so were my family so it was time to suck it up and get my house in order.

I did it after my wife lost her job, we just had twins (three kids under three), I was starting a business, and had recently bought a house…and so all my excuses were utterly meaningless. Once I decided it had to be done, it got done.

Why might you be putting things off? Let’s look at the justifications, and kick them in the balls.

Income protection for the self employed

1. I couldn’t afford 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 supporting 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 but put something in place, you’ll be surprised how affordable income protection can be if you choose a reviewable premium, an early ceasing age and you 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 the 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. Ages.

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

It could happen at anytime.

I couldn’t wait and neither can you.

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. My background was arranging mortgages and mortgage protection.

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 so as I learned about income protection, I put my words into the blog and taught other people.

At it’s 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 the income protection category of our blog.

4. I hadn’t the time to arrange it

Yeah, I had three babies, new business, busy, busy. I get it, being self employed is crazy busy. But you need to take time to protect yourself against the “what ifs” because while you’re all focused on sales and marketing, you might get blindsided by an unforeseen, catastrophic event that puts your business on hold while you deal with a long term condition. The incidence of stress is on the rise especially among the self employed.

Anyway, how long does it take to get a quote and complete an application form online? 15 minutes, maybe 20.

If you’d like me to arrange your cover, 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 as you probably do about insurance, it’s all a scam, they never payout. I had made a house insurance claim before and got nowhere, friends had trouble with car insurance claims. I thought life insurance providers were 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 cover.

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

  • non disclosure (lying on the application form)
  • making a claim before the end of the deferred period and actually getting back to work before the deferred period ends

Here are the payout statistics from one of my providers in 2017

income protection claims stats 2017 ireland

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 mental health issues, you will have a mental and functional health disorder exclusion on your policy…but you’ll be covered for everything else.

If you suffer with continuous back pain and are on painkillers, you will have a back/spinal exclusion on your policy…but you’ll be covered for everything else.

It’s not the pre-existing conditions that you should worry about, you’re aware of these and take the necessary precautions. It’s the out of the blue illnesses that will blindside you – the ones that you will be covered for.

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

7. Contractors can’t get income protection

This is a myth.

If you’re a self employed contractor, you 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’m awarded a new “contract” every time a client takes out a policy with me, if nobody takes out a policy for 3 months, hell I’m the same position as a contractor who doesn’t work for three months. If I don’t have an income for three months and then fall ill, my income protection will still payout 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, he has worked without a break in contract for 3 years @ €60,000 per annum.
His income protection payout will be 75% of €60,000.

Jim is an IT contractor but had a break in contract for the last 3 months so he earned €45,000 in the last 12 months.
His income protection payout will be 75% of €45,000

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

You see, we all have excuses.

You can have excuses, or you can protect your future.

Your choice.

What’s covered by self employed income protection anyway?

Income protection insurance pays you a monthly income if you can’t work (and aren’t taking earnings from your company) due to any illness

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 working.

How does it work?

Sinead is a self-employed IT consultant.

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 4 years whilst undergoing treatment.

At the start of the plan Sinead selected a deferred period of 6 months and received her first payment from the insurer of €6,250 at the start of the 7th month.

Over the 4 years, Sinead received 42 monthly payments of €6,250, totalling €262,500, enabling her to meet her financial obligations whilst out of work.

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 whole 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 at application stage 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 month.

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…

At this stage, I’m hoping you’re furiously looking for my contact details or have already got in touch.

But I know for most of you, this won’t happen and that makes me sad (and makes me sound a bit like Donald Trump), very sad.

Imagine how many self employed people read this post, unfortunately some of them are going to get sick.

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

Wise up, get your house in order and get yourself some of that income protection, if not from me, that’s grand, just buy it somewhere.

If nothing else, it’ll give you a great night’s sleep.

If you are considering income protection, and you’d like me to help then this blog post hasn’t been a complete waste of 2000 odd words!

If it’s outside office hours, please complete the quick outline form below and I’ll be right back.

Because we’re independent, I can offer advice on policies from

  • Aviva
  • Friends First
  • Irish Life
  • New Ireland
  • Royal London

There are huge differences between them so please take some advice before you choose.

Shop around.

Get independent advice then make your decision.

You know it makes sense but you have to make the first move.

Are you ready?

I’m available for a chat at any time during business hours on 05793 20836 or open my diary here and schedule a call….or hit the chat button down there somewhere.

Read next : Income protection for self employed contractors

Nick McGowan
lion.ie | making life insurance easier

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