There are plenty of advantages to being a sole trader, but income security isn’t generally one of them. When sickness or injury can be a death knell for your finances, there needs to be some form of safety net. Income protection insurance is essential for sole traders then, providing a way to pay the bills if you can’t work.
What to know about income protection insurance:
- Income protection doesn’t cover all your wages: Depending on your plan, income protection generally only pays back a maximum of about 70-80% of your income.
- The payout isn’t immediate: After you make a claim with your insurer, it can take anywhere from 7 business days to 2 months to validate your claim and give you your first payout.
- It’s primarily designed to protect against injury or illness, not unemployment: While you can get plans that cover unemployment (typically only for being made redundant), generally income insurance only protects against injury or illness.
When Should You Claim Your Insurance Protection?
There are two main reasons why you would want to claim on your insurance; illness or injury. A debilitating injury (whether work-related or not) is the sort of situation that should merit a claim, backed up with a doctor’s certificate to get the ball rolling. Illness is the second reason; it doesn’t need to be life-threatening like smallpox either, if you’ve caught something that’s going to leave you unable to work for a month or more, then you’re able and should claim. Claiming for unemployment reasons depends on your cover, some only allow it when you’re made redundant instead of a contracting job simply finishing up.
Why Should You Get Income Protection as a Contractor?
Despite the limits on claims described above, getting income protection is probably even more important as a sole trader, contractor, or freelancer than as a full-time worker. This is because you lack the safety net provided by sick leave and injury cover. In the event of an injury, you’re left on your own. Income insurance also covers the gap left by health insurance, providing a more thorough cover. While health insurance covers medical expenses, the rest of your bills will still come in and need to be paid. And finally, income protection gives you some peace of mind about your financial security.