Income Protection To Shelter The Self Employed From Financial Woes
This time last year, it was reported that of the 5.5 million businesses registered in the UK, 99% of them are small to medium in size
The services industry makes up a whopping 74% of UK business. Of that, the majority are small with either one owner or under 9 employees.
One owner businesses cannot take their business or personal finances lightly
When it’s only one self-employed person in the driving seat of the business, one single bout of ill health could see cancellations, an inability to invoice and a personal financial crisis potentially just around the corner.
Recently, Liverpool Victoria (LV.com) partnered with YouGov to survey 9,000 individuals to ascertain just how much people were at risk of a personal financial crisis. The results published in the first of a series of reports by LV.com titled “Income Roulette” are an eye-opener for all businesses and those self-employed.
The total number of self-employed workers in the UK is five million. Of those surveyed, only 4% have any sort of income protection plan in place.
The consensus among a large proportion of survey participants is that they either can’t afford it, or they thought they’d be ineligible because of the self-employed status.
- 42% recognise the importance and benefits of income protection and would have it, if only they knew they’d be eligible.
This indicates that insurers need to work at getting their messages clearer to communicate what people can and can’t get cover for.
The reality is that income protection policies are not an insurance product based on your employment status. To be eligible, all you need is an income, from the work you do, to protect. Whether you are self-employed or employed makes no difference to the eligibility criteria. Provided, what you’re doing to earn a living is legal, you’ll be eligible for some level of income protection.
The reason those people who want income protection cover but don’t have it is…
They believe they can’t afford it.
Not surprisingly, affordability remains a top factor in not having any protection cover in place. In many households, finances are stretched. That’s the same whether you’re self-employed or in employment, maybe even working more than the one job. When money comes in, it’s not slow to go back out again.
What is worrying is that 41% of the survey participants cannot afford to save anything each month. 11% say they can afford to put aside up to £50 each month, therefore a maximum of £600 per year from the total annual earnings.
Very few have enough savings to cover for the recommended three months that may be required should they fall into ill health and be unable to work. The reliance would be on state benefits to see them through a period of ill health.
These are the State benefit sick pay rates for someone self-employed who has found they were unable to work. In the majority of cases, those payments aren’t going to be enough to pay for the entire regular outgoings of someone that is self-employed. When you take into account all the bills that need paying, such as business rates, vehicle finance, household finances, and various types of insurance – including limited liability insurances… it would be too much for any type of state benefit to cover.
The only true way to protect yourself, your family and your business is to proactively put income protection in place
This will provide financial assistance through periods when you’re unable to work due to ill-health and fully expect to return to work. It’s not the same as critical illness, which only pays after a diagnosis of a serious health condition which would prevent you from ever returning to work.
Income protection is ideal for financial protection from ill health resulting in a short-term absence from your work. Therefore, it’s more suited to those in self-employment because they won’t have any SSP benefits to rely on. Insurers can fill the gap to give you an income when you’re unable to work.