This next article of mine focuses on a fictional case study, which I have created, to help illustrate how someone who is self-employed can protect their income. The people are not real, but the issues they face in this case study are!
Consider this problem
A self-employed person, let’s call him Fred, has just set up his own printing business in the family garage and is earning a moderate income.
After borrowing to finance the equipment and start-up costs, it dawned on Fred that if he was unable to work, he and his family could find themselves in serious financial difficulty.
The simple solution
Income Protection (IP), insurance that provides a replacement income for a set period of time if you are injured or become seriously ill. But for Fred, determining how much income to insure was the hard part – particularly as he was a start-up with no financial history.
In Fred’s circumstances there are two possible options
Agreed value: the insurer agrees to a benefit amount upfront and the premium is calculated accordingly. This method usually requires two years of financials, particularly if you’re self-employed – this option would be difficult for Fred.
Indemnity: financials are unnecessary at the time you take out the policy, but in the event of a claim, evidence of income is required to determine the benefit amount. The benefit paid to Fred would be based on the amount he earned at that time..
Talking about the options in this instance would be very important
- Agreed value cover to, say, half of the person’s projected income, for twelve months with a review after that time. The advantage is in knowing what the payout will be.
- Indemnity cover, although the insurer will likely insert a clause disregarding income earned prior to starting the new business.
In the end, what you decide to take out will be up to you and your specific circumstances, but it is good to know that these premiums are tax deductible!
Let me help you get covered
With good advice and an understanding of a Fred’s needs, we have helped him understand his options. He now has one less thing to worry about and he can get on with doing what he does best, growing his business.
If you’ve recently taken the self-employment leap or want to discuss your income protection options, give me a call so together we can make sure you and your business are protected.
– Emma Brooke