Contractor Income Protection Insurance Cover 

If you decide to work as a contractor, you will invariably be faced with a choice of your status. You will either set yourself up as self employed as a sole trader or you may set up a limited company with yourself as a director. Either way you will be in charge and with that responsibility will be the need to ensure that you protect yourself in the event of ill health.

One of the first protection plans to consider is an income protection plan. As the name suggests, this plan is designed to provide you with a monthly benefit payable until you return to work. However, there are some important points to consider.

It is crucial to understand how your income is defined by an insurer. If you are self employed you may take drawings, but the calculation of your income for insurance purposes is your net profit. This is your gross earnings less your business expenses. Clearly, you may wish to keep your profit as low as possible for tax reasons, but this will penalise your possibility of gaining your desired level of monthly benefit. For the company director, you will be classed as employed, so your income will be made up normally of salary plus dividends. The calculation of your maximum benefit in each scenario is the same; it is 50% to 65% (Department of Work and Pensions maximum allowable) of net profit or gross income. Clearly, there is greater scope for greater benefit as a company director.

The other major consideration is your occupation as this will determine the class of occupation and ultimately the price. The more manual or physical your job, the greater the perceived risk to the insurer, the greater the cost. Above all, it is important to insist on an "own" occupation basis, so that if you did have to make a claim, you would be assessed against your ability to perform the duties and tasks of your own job. This avoids the insurer refusing to pay your claim for incapacity or asking you to perform another job as you didn't meet their definition.

Taking out income protection insurance cover may just be the key thing to help if you were off work with a long term illness or not able to carry out your normal activities at work. Such insurance therefore could support you when needed, and within the economy over the last few years some people have been finding it difficult to find jobs that need doing so it would be even more devastating if you could not work for personal reasons. The added security of taking out income protection insurance means that you will have piece of mind that you will be able to pay the day to day bills as normal.

Income protection insurance cover can be daunting for some individuals and would need the help of a financial adviser to guide them into a plan which is right for them. There are many options to choose from and therefore can get very complicated but also very expensive if you do not choose appropriately for your job type for example. It is essential that your occupation is correctly matched to your job type as income protection is based on occupation classes.