Why the Self Employed Value Income Protection

When people strike it out on their own to start their own business, many are not initially focused on the protection gap that results after leaving paid employment. Many employers have sick-pay entitlements but that would be lost for those moving into self-employment, along with any group insurance benefits provided. Directors of small companies usually face these same hurdles. This is why it is extremely common that both of these groups will seek out personal or executive income protection insurance for themselves, along with other important types of cover such as life and health insurance. It really boils down to the trend that the self-employed generally have both high personal incomes and substantial business operating costs to protect should they become ill or injured. Self Employed, Self Protected There is an extremely popular trend in which professionals, once they have industry experience, start their own businesses. They leave their jobs to strike out on their own and end up leaving behind generous employer provided insurance benefits, including sick pay entitlements and group insurances. When they do strike out on their own, these professionals often come to the realization that there is now a significant protection gap, resulting from concern over what will happen if they were to become sick and therefore unable to work with no safety net already in place. The self-employed, once they come to this realization, will commonly seek to arrange their own cover in the personal insurance market. The most important types of cover include health as well as income protection insurance. Health insurance enables the self-employed to obtain a speedy recovery without any of the hassles associated with medical bills and income protection allows for a monthly income pay-out to replace any lost earnings. Long-Term Solution When new directors leave employment that offers sick-pay entitlement, many will be encouraged to seek the shortest possible deferment period when obtaining an income protection plan. The deferment period is defined as the amount of time before the plan accumulates benefits and begins to pay-out. Truth be told, income protection is generally designed to be used in the long-term, which often covers earnings over a working lifetime. Unfortunately, the premiums can be quite high if a person wants to have a very short deferment period. It usually makes more sense to determine how much capital would be necessary to cover expenses before the policy kicks-in and put that amount into savings. If an expense savings account is set up, the deferment period can be extended accordingly, thus allowing the monthly premiums to be reduced considerably. Commonly, the deferment period is about 13 weeks long in most cases. The Executive Option For company directors, there are two types of income protection cover. The causes for a payout are exactly the same but they differ in how they are set-up. The two types are for a personal plan or an executive plan. With personal protection, the monthly premiums are usually set up to be paid from a personal bank account and pay outs will generally be put directly into the same personal account. With executive plans though, the business pays the premiums and the benefits will be paid to the business, which would then pass along the payout to the director. Deciding which option to choose will depend on the tax implications involved with both the payout from the plan and the treatment of premiums as a business expense.