Owning and running a business is an enormous responsibility. Unlike when you're employed, everything rests on your shoulders as a business owner. There's no guaranteed sick pay, holiday pay or pensions. The financial insecurity is arguably one of the most difficult parts of running a business.
However, there are ways to protect yourself financially should you need to. Having the right provisions in place means that you can relax and focus on growing your small business instead of worrying about the 'what ifs'.
One way of giving yourself this all-important protection is by taking out income protection insurance. Let's talk a little about what this insurance product is designed to do and how it works.
What is income protection insurance?
Income protection insurance sits under the umbrella of 'life insurance', along with other products such as critical illness cover and mortgage protection. Income protection is designed to provide you with around 30-50% of your salary should you become seriously ill or injured. In some cases, you can cover up to 70% of your salary, however it all depends on how much cover you would like (and can afford to) take out.
If you become too ill or injured to work long-term and are able to claim on your income protection insurance, your policy will pay out in regular lump sums (typically either monthly or annually) until you either reach state pension age and retire, you recover and go back to work, or you pass away. Whichever comes first, basically.
How much does income protection insurance cost?
The larger the proportion of your salary you decide to cover, the more expensive your monthly premiums are likely to be. The cost also depends on a few other factors such as your age, job, whether you smoke or have previously smoked, your current health and your family's medical history.
How does income protection insurance aid business owners?
Income protection is not designed to protect your business. It is designed to protect you - and as a small business owner, you are at the centre of everything! By taking out an income protection insurance policy, you are safeguarding your income against the risk you become too ill or injured to continue running the show competently.
A successful claim on your income protection insurance policy would allow you to continue paying your rent/mortgage, utility bills, living costs or healthcare costs. You decide how best to use the money. You could also use it to cover any business-related costs such as website hosting bills, loans or credit card payments. In addition, if you have a family to provide for, it will also help them to continue living with some sense of normality without one of their main breadwinners in action.
How is my income calculated?
Being self-employed, you'll know that your income is not exactly black and white. However, income protection providers and brokers will be well-versed with helping self-employed individuals take out the right cover for their individual circumstances.
They will most likely base your income on your share of the pre-tax profits generated by your business. The amount of cover you need will depend on the size of your mortgage and whether you have taken out any loans to build up the business.
Don't worry if you think you might struggle to prove your income. There are plenty of options available to you and experts out there to help secure you the right cover.
If illness or injury would mean that you would be in a difficult position when it comes to paying bills, you should definitely consider income protection insurance as a business owner. You are paying for that peace of mind that everything you've worked so hard to build will not suffer too much if something unexpected happens to you.
Copyright 2021. Featured post by Emma Walker, Chief Marketing Officer at LifeSearch.