Income Protection for Self-Employed Contractors

Income Protection Insurance for Self-Employed Contractors

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One of the most common issues when choosing to become a contractor is losing the benefits and financial stability associated with being an employee.

Unfortunately, most contractors do not seek advice on what may happen if you are not able to work on your contract until it’s too late. Contractors can save themselves the stress of having to worry about financial loss by simply covering themselves against certain eventualities, such as, accident, sickness or even death.

It is important to consider what would happen if you were unable to work and to replace any employee benefits package to prevent you from being vulnerable.

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If you feel you could benefit from any of the above, The Insurance Surgery are on hand to provide guidance.

Income Protection

  • This protection product is designed to pay up to 70% of a working individual's annual pre-tax income as a monthly benefit (tax-free), should they be off work due to illness or injury.
  • There is no restriction as to what illness or injury this may be. It’s simple. If you can’t work, you can make a claim.
  • You can choose how long you want to wait before the benefit is paid. This is known as a deferred period which varies from day 1 to 52 weeks.
  • You can claim as many times as you want throughout the policy term, short and long-term options are available starting from 1yr, 2yrs, 5yrs or full cover which usually insures you up to retirement age.

 

Anyone who doesn’t have full sick pay from their employer has a genuine need for income protection simply because if you’re not working, you’re not earning any income, which means paying for all your outgoings can become extremely different.

State benefits are getting harder to qualify for and you may not get enough benefit to cover your outgoings even if you did qualify. The Insurance Surgery can cover most occupation classes. 

For more information on how a Relevant Life Policy or income protection will affect you, please download our guide below:

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Did you know that as a director of a limited company, you could benefit from taking out personal life insurance? 

The Insurance Surgery have put together the basics of what is a Relevant Life Policy, and how it can affect contractors. Take a read below: 

Many contractors take out relevant life insurance policies to give both them, and their family peace of mind should you pass away.

In addition to the reassurance that your loved ones are protected, you will also benefit from considerable tax savings on the premiums.

Contractors that are paying 40% personal income tax could save up to 52% on life insurance premiums.

What is Relevant Life Insurance?

Relevant Life Insurance provides life cover to the policy holder, by paying a lump-sum benefit if the person covered passes away within a set period of time.

The difference being that the premiums are paid for by the company, which results in tax savings for the contractor. Plus, it is not just protection for the Director, it can also be extended to protect employees.  This can even include a spouse, should they be receiving a salary from the company.

Proceeds from a Relevant Life Policy claim are held in trust for the dependants, unlike ‘Key Man Insurance’ which is a type of life insurance policy that is taken out by a business on the life of key employee, but only pay out to the company.

Why is Relevant Life Insurance tax efficient?

Some of the benefits that Relevant Life Insurance have to offer include:

  1. The premiums are paid for by the company and not your personal income
  2. Taking out Relevant Life Insurance would be classed as a trading expense and so is not treated as a P11D benefit, and does not have to be included on you P11D form each year. Therefore, there are no implications to the amount of personal tax you owe.
  3. There is no National Insurance payable on the premiums
  4. Relevant Life Insurance will not be registered with HMRC, therefore will not form part of your pension allowance
  5. The Relevant Life Policy must be written under a ‘specialist relevant life trust’ and this can be done free of charge, meaning it's paid tax-free
  6. The policy ensures that claim payments will be made unhesitatingly to the listed beneficiary without having to wait for a probate
  7. The Relevant Life Insurance is not counted towards your annual pension limit.

Conditions and restrictions of Relevant Life Insurance

As does most other common insurances for contractors, like Professional Indemnity and Public Liability, Relevant Life Insurance comes with its restrictions.

One of the restrictions of Relevant Life Insurance is that you are only covered until you are 75 years of age. This must include life cover, but it doesn’t actually cover critical illness or disabilities.

Factors such as: occupation, general health, lifestyle all affect the amount that’s charged and the terms of your Relevant Life Policy.

Will Relevant Life Insurance affect Inheritance Tax?

Contractors will be happy to hear that another benefit of Relevant Life Insurance is that it won’t affect Inheritance Tax, as it is paid by a discretionary trust.  A discretionary trust is where the trustees can make certain decisions about how to use the trust income and sometimes the capital.

The trustees will have the power to make decisions such as; what gets paid out, whether it be income or capital, how often payments are made, and which beneficiary to make payments to.

How much cover will contractors actually get?

With Relevant Life Insurance, contractors can cover up to 20x your annual income with the maximum annual limit being £10 million.

For example, if a contractor was to earn £30,000 per year in salary plus dividends, they would be able to take out £600,000 in cover.

How to get hold of Relevant Life Insurance

Most protection insurers in the UK sell relevant life insurance. For contractors looking into taking out Relevant life, it is advised to seek independent specialist advice.  

The Insurance Surgery have a team of insurance experts which have helped thousands of families, individuals and businesses to protect themselves against financial loss.

The Insurance Surgery Offers:

  • Free Advice Whole of Market as well as access to specialist providers
  • Highly trained team of advisors
  • Experienced business / contractor team (i.e. Tax efficient cover)
  • Free Trust service
  • Outstanding customer feedback
  • Free annual review service

Established in 1999 and now one of the leading specialist insurance experts for personal and business protection products.

To get a quote, or to learn more information on RLP, visit our Relevant Life Policy Page.

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