The aim of income protection for self employed people is to ensure that, should you be you be unable to achieve your current level of income due to illness or disability, the cover you hold will compensate you.
In general an income protection policy will cover 65% of your total income. As this is a tax free payment, such a level is seen as equivalent to the gross income you should receive under normal circumstances after all deductions are made.
How to Calculate Your Income
Even for self employed people, income protection policies are designed to protect the income of the individual, as opposed to the company. This means that the level of income that you should declare is not the turnover of the company itself but the level of remuneration that you take home.
For a sole trader, subtracting business costs from the company’s turnover will usually provide the figure that you require. However, as the company finances become more complex, further adjustments may be required.
It is usual for an insurance provider to take an average of the last twelve months income to calculate a fair salary for your work. However, if your remuneration fluctuates greatly over a longer period, this can also be taken into consideration when making the calculations.
As with any type of insurance product, it is essential that you are completely open and honest about your level of income when applying for the cover. Though you may feel that it would a good idea to inflate your takings so that the level of benefit you can claim could be higher, your income will also be assessed at the time of the claim. If your salary is seen to be dramatically different from that which has been previously disclosed, the validity of your entitlement could then be in dispute.
Making a Claim
When making a claim on an insurance protection policy for a self employed person, the entire benefit that you are able to receive is calculated to a level which will ensure your income does not fall below the pre agreed level, which is usually 65%.
This means that if your illness or disability is reducing the level of your income rather than eradicating it altogether, your claim will be adjusted so that you achieve full benefit up to this amount but do not exceed it.
In the same way, if you hold more than one income protection policy, you will find that the full benefit you can receive across all policies will be limited to your maximum protection level, irrespective of how many premiums you pay. For this reason, it is usually more cost effective to have one comprehensive self employed income protection policy, rather than several small policies which can cost more.
Self employed income protection insurance provides a level of economic certainty that is just not possible without such a product.
By having all the facts before you start, you can ensure that you get the cover that is right for you.
Call us today on 0800 799 9330 for a no obligation chat about how income protection cover can help you or compare quotes here.