Income Protection Cover For Small Businesses
Posted on 20th November 2021
If you have been an employee, you will have benefited from a regular salary, a pension, paid holidays, and sickness pay. When you start your own business there are steps you can take that will give you some financial protection.
Income protection insurance explained
Income protection insurance will usually protect up to 70% of your income if you have an accident or are too ill to work.
You can choose a policy that covers you for a fixed period if you are unable to work. Alternatively, you can take out a long-term policy that would provide protection until you die if you are seriously ill and are unable to work again.
Cover can include credit card payments or your loans, including mortgage repayments, and part of your salary while you’re unable to work.
Types of income protection policy
If you choose a guaranteed policy, your premium will stay the same for the life of the policy. These policies might look expensive in the short term but could be a cheaper option for the medium- to long-term.
With an age-related policy you’ll know in advance how much your premiums will increase each year. This is a popular choice for people in dangerous occupations who already need to pay higher premiums.
You can also choose how long your payments will continue. A short-term policy might provide monthly payments for up to 12 months, two or five years. Longer term coverage might last until you are ready to go back to work or until you reach retirement age. Of course, your premium will increase with the length of your cover.
There are several factors that could affect your premium such as your age, medical history, family health history, occupation, and how long ago you started your business.
You will also need to decide whether you want to be covered if you are unable to work in your specified occupation, in a field that requires similar experience, or in any type of paid work.
Income protection insurance will normally be based on your pre-tax earnings, not your business’s revenue, and some policies limit the total annual benefit you can receive. Some insurers might take an average of your previous earnings over a period of time, so if your income varies significantly this could affect your policy choice.
Your premium will be affected by the length of time between stopping work and when your policy pays out. This is known as the deferred period and it can range from just one day to a month or a year. Many insurers offer self-employed people who won’t receive sick-pay a shorter deferred period. Generally, the longer you wait, the cheaper your policy will be.
If you would like some advice to help you choose an income protection policy to suit your needs please get in touch.
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