As the International Monetary Fund confirms that the UK is the only developed economy set to shrink in 2023, the next 12 months could be tough for business owners. The landscape is arguably even more worrying for the self-employed.
If you are a business owner, you might be forced to make some tough decisions. But what would happen if you became ill? And how much worse would the situation be if you are self-employed?
A recent report has highlighted worryingly low levels of protection among the self-employed, so keep reading to find out if it could provide financial peace of mind for you and your loved ones.
Only 6% of self-employed workers have income protection
A recent survey conducted by LV= found that almost a fifth (17%) of self-employed UK workers would carry on working through illness or injury. Partly, this is because only 6% of them have an income protection product in place.
The report also found that:
- 60% of self-employed workers would turn to savings to cover household bills if they had to stop working for two months.
- 20% of employed and self-employed UK workers would rely on their partner’s savings or income if their own income stream dried up.
- 19% of UK workers would struggle to pay their mortgage or rent after just two months out of work.
- 11% would resort to loans, an overdraft, or credit cards to cover household bills.
Despite the lack of financial protection in place, more than half (56%) of working Brits would feel more financially resilient if they had insurance in place.
Income protection could ensure your financial security
An accident or illness could make working difficult, but when you’re self-employed it might not be affordable to stop. This is why you need income protection in place.
It is especially important if you are a homeowner with an outstanding mortgage debt or if you are your family’s sole breadwinner.
The monthly payments provided by income protection could be enough to cover your mortgage, rent, or household bills. These payments could make all the difference in ensuring you and your loved ones remain financially secure.
Generally, income protection policies pay around 60% of your usual income until you return to work, retire, or the cover expires.
Critical illness cover pays out a lump sum on certain diagnoses
If you are diagnosed with a serious illness, you’ll want to focus on getting better, not worrying about who is paying your household bills.
With critical illness cover (CIC) in place, you have the peace of mind that you and your loved ones are covered. This allows you to focus on your physical and mental wellbeing.
CIC pays a cash lump sum if you’re diagnosed with any of the conditions listed on the policy. This typically includes long-term or serious conditions like a heart attack and stroke, or diseases like some cancers, multiple sclerosis or Parkinson’s disease.
The money can be used to pay medical bills, help towards home improvements if the condition requires it, or simply to cover bills and mortgage repayments while you are unable to work.
The illnesses covered will vary by provider and lifestyle factors could partly determine the amount you pay. The cover, though, could prove invaluable.
A combination of both might be most prudent as they protect against different things
An accident or illness can strike at any time but with the right cover in place, you’ll have peace of mind that your financial commitments can still be met. These commitments could be specific to your household, your business, or both.
Whereas an income protection policy replaces a part of your income and is great for short-term illnesses or accident recovery, CIC covers a different eventuality. A long-term illness could mean a completely different set of outgoings and a lump sum might be perfect to cover these.
Ultimately, while we all hope that we never need these types of cover, you’ll have peace of mind once they are in place.
It is impossible to second-guess the type of cover you might need, which is why having both products is likely to be the best option.
Get in touch
The year ahead is likely to be tough for small businesses and the self-employed. Some things that affect your business this year will be outside of your control, but others will not.
While you can’t control the economy, you can do your best to protect yourself and your loved ones from the financial shocks that an accident or illness would bring.
If you would like to discuss any aspect of your financial protection or current retirement plans, please get in touch and find out how our team of expert planners can help.