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What financial protection might contractors need during COVID-19?

Protect your financial interests throughout COVID-19

The possible impacts of the Coronavirus on the contracting industry are wide-reaching. Contractors face quarantines and other governmental actions that continue to threaten the contracting workforce. So, as contractors, how best can you protect your financial interests and prepare for your future? 

Well, having the right insurance in place is considered key to ensuring that you and your family have one less one thing to worry about. In this article, we look at the protection policies that may be suitable for you as a contractor. 

Critical Illness Cover

Critical Illness Cover is designed to help if you suffer a serious illness such as cancer, a heart attack or stroke. 

Having a Critical Illness Cover in place can help ease your recovery by paying out a lump sum or regular payment when you are diagnosed or suffer the illness. This could cover your care and treatment, your recuperation, help pay off your mortgage, make up for lost income or even fund a well-deserved holiday. But it’s entirely up to you – for example, one of the most common things people use the lump sum for is to build a conservatory. 

Bear in mind that Critical Illness Cover can differ from policy to policy. Some policies only cover a few cancers whereas some can cover all. It is, therefore, crucial to take sound advice before selecting which policy suits you best.

COVID-19 isn’t a specified critical illness or serious illness that providers cover. However, the majority of protection providers cover you if an illness results in intensive care. Most define this as: “Any sickness or injury resulting in requiring continuous mechanical ventilation by means of tracheal intubation for 7 or 10 day (dependent on provider) consecutive days (24 hours per day) or more in an intensive care until in a UK hospital.”

As time goes on it may become clearer that the COVID-19 virus can go on to develop long-term health issues, which may be covered by a critical illness policy.

Income Protection

Income Protection is designed to protect your income should you become ill or injured and no longer able to perform your job. The income is there to support you, not to make you better off. Policies are arranged to protect 60% of your income (including salary and dividends). Some specific providers will also cover spouses’ dividends too. This is because if you are unable to earn, neither will your spouse.

Life Insurance

Life insurance will help protect the mortgage you have secured, should you pass away. For limited company directors, Relevant Life Cover may be most suitable. Relevant Life Cover is a tax-efficient life insurance policy allowing businesses to offer death-in-service benefits for employees (including directors of limited companies). It pays out a lump sum in the same way that a regular life insurance policy would.

Will these protection policies pay out for COVID-19?

The majority of protection providers have clarified their position on pay-outs for COVID-19, as well as adapting their policies to match the current climate. 

For example, Vitality, under their Private Health Insurance plan has introduced a new COVID-19 cashback benefit. This is available for health insurance members who require a hospital stay due to Coronavirus. You would be eligible to claim:

  • Days 1 to 8 – £250 per day
  • Day 9 onwards – £500 per day (a person with a stay lasting 9 days or longer is more likely to need critical care for COVID-19, based on the latest evidence and research)
  • This is subject to a maximum of £5,000 overall

Meanwhile, protection specialist LV= has paid out more than £2.5m in Coronavirus-related income protection and death claims to nearly 300 individuals and families. Up to 30th April 2020, the same company paid out 146 Coronavirus-related claims to policyholders with short waiting period Personal Sick Pay policies.

Where to arrange your protection

When figuring out the protection policy best suited to you, we highly recommend getting specialist advice. Some comparison websites may show you cheaper cover, but they don’t always match your needs. Is there any point of paying for cover which might not even pay out when you need it most?

For example, as a contractor, you may not always be in contract. If you became ill or injured during this period, some protection providers would deem you ineligible for a pay-out. However, there are some that will take into consideration your income from the last three months, the last year or even the last three years.

Given the vast number of protection providers out there, it is key that the one you choose matches you, your family and your financial needs. If you already have protection policies in place, it is worth taking the time to review them to make sure they are suitable for your current circumstances.

Andrew Donnelly is Head of Financial Protection at Super Contractors, a firm that ensures contractors, freelancers and self-employed have the correct protection in place for themselves, their family and their home. Super Contractors is a trading name of Lifetime Finance Group Limited which is an appointed representative of PRIMIS Mortgage Network a trading name of First Complete Limited which is authorised and regulated by the Financial Conduct Authority.

By Andrew Donnelly

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