When you work for yourself, you no longer receive the same benefits that you may have had when you were employed full time – such as sick pay and death in service. This means it’s up to you to make sure that you’re protected for whatever life throws at you. But as the years go on and life changes, the protection and insurance you have in place will need to change too.
If you fail to review your protection every year (or every few years) you could end up paying too much for a policy that no longer suits your needs. On the other hand, you could be paying too little and not receive the amount of cover you need for your changed circumstances.
This is especially important if you have moved home recently. It’s likely you originally took out life insurance to cover the cost of the mortgage so, in the event of your death, your family are not left with the remaining debt. If you’ve upscaled or downsized in the last year or two (or since you took out your life insurance), it’s worth checking you are still covered in the way you need to be. More than that, it’s also important to check your protection policy documents to make sure you are still eligible. Some insurance policies, such as Critical Illness protection, will only cover you up to a certain age. If you no longer meet the eligibility criteria for a particular insurance policy, when it comes to making a claim you may not be covered.
Of course, the most important reason to review your protection needs is to make sure your family are protected in the way you need them to be. What will happen to your family if something happened to you? If you fall ill will you still be able to put food on the table? Keep a roof over your family’s head? If you find yourself struggling to answer these questions, below are the insurances we recommend you review as a Contractor. Take into consideration if you are covered in the way you need to be if you already have them or if you need them in the first place.
Life Insurance/Relevant Life Insurance
As mentioned earlier, if you have recently moved home it is important to make sure your life insurance policy will still cover the cost of the mortgage so your family are not left worrying about keeping up the repayments. If you own a limited company, it puts you in a good position as you could be saving money by paying for your life insurance through your business rather than out of your own pocket and taxed income. This is known as Relevant Life Insurance. As the payments are claimed as a business expense, you can save up to 19% corporation tax on the cost of the premium. Best of all, it will ensure that your family are financially protected if anything happens to you.
As you don’t have sick pay to fall back on, if you become too ill to work Income protection will pay you a regular wage until you are well enough to return to work. If you have recently taken on a new contract and are being paid more, you will need to make sure your Income protection payouts align with the new income. If not, you may not receive as much as you expected and be able to cover household bills and everyday living.
Critical Illness Protection
Critical Illness is a long-term insurance policy which usually pays out a tax-free lump sum if you are diagnosed with a serious illness. It is designed to help pay off debts, your mortgage or pay for any alterations needed to your home to help you with the illness, for example, if you need a ramp for a wheelchair. As most policies only payout once it is important to consider everything that needs to be covered if your illness meant that you could no longer work and generate the income you previously relied on.
If you’re unsure how much cover you need, we work with Broadbench, the protection specialists for Contractors, who can help you get 2019 off to a great start by reviewing your protection.