Why contractors should consider financial protection after covid

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Martin Baxter
16 Jun 2021 @ 08:06 am

Read on below for a guest article by CMME.  

This article is for information purposes only and should not be seen as financial advice. You should always check the terms and conditions and consult with your accountant or a finance expert for any tax advice. 

The pandemic has undoubtedly impacted everyone in one way or another, with contractors and independent professionals at the forefront of countless challenges over the last year - Brexit, IR35 (off-payroll working rules) and work uncertainly to name a few. It has also demonstrated how the unexpected can happen and highlighted the importance of financial resilience.  

Could you support yourself and your family if you were unable to work due to factors out of your control? With so much uncertainty throughout the past year, there has never been a better time to consider protection insurance or review your current policy, for peace of mind. 

Creating a plan can set you up for long term financial security and prepare you for the unexpected. We have compiled a list of our top tips to assist you in the process. 

Why should contractors consider financial protection?  

Quite simply, this protects you and your family if you are unable to work or the unexpected happens. There is a range of policies that pay out under certain circumstances with the aim to take the pressure off by offering financial security. 

The latest figures from the Association of British Insurers (ABI) reveal that the insurance industry has paid out a record-breaking £6.2 billion in life insurance, income protection, and critical illness claims in 2020 (the equivalent of £17 million a day). This is the highest combined figure on record and up 8% in 2019 – further highlighting the impact of the pandemic. 

With claims paid out of this size, are you and your family as well protected as you should be? The right financial protection policies will depend on your circumstances and priorities so it’s important that you are aware of all your options. 

What types of financial protection should you consider as a contractor? 

Income protection: income protection insurance is a policy designed to protect you by paying a regular tax-free income to support you if you are unable to work due to illness or events beyond your control. You can use the money to ensure you continue to meet your financial commitments such as bills, mortgage repayments, debt, and any other costs. This is a particularly important cover for contractors as you won’t expect to get paid if you are off work due to an accident or injury.  

Critical Illness Insurance: the diagnosis of a critical illness can be life-changing, and the last thing you need to be worrying about when you’re going through something like that is where money is going to come from. Critical illness insurance pays out a lump sum if you are diagnosed with a critical illness. There are no limitations on what you choose to use this money for which means you can put it towards medical costs, to pay off your mortgage, or to fulfil any other financial commitments. 

Life insurance: although it is a topic most of us would rather avoid, it is an important conversation to have and avoiding it could mean that you are not prepared if the worst happens. 

As a contractor, you will not be covered by a workplace policy provided by your employer so, therefore, it is up to you to arrange all the necessary means to ensure that your family is taken care of in the unfortunate event of something happening to you. 

If you are choosing to move between contracting and PAYE, you can also arrange term cover, which lasts for a fixed amount of time if you do decide that a short-term agreement is something that will benefit you.   

Relevant Life Cover: relevant life cover serves the same purpose as life insurance, but it is set up through your client's limited company. This can often be a tax-efficient way for a contractor to provide for their family in the event of death or diagnosis of a terminal illness – please note that it’s always best to consult with an accountant or tax professional to work out what’s best for you before making any decisions that may impact your income. 

How much do I need to pay for financial protection? 

There are no standard quotes for insurance policies as costs are based on your individual circumstances, such as health and age, however, as an example; the average monthly premium for a life insurance policy ranges from £11.01-£32.34*.  

It is worth establishing whether your protection needs are a priority for you. If so, then swapping non-essentials throughout the month such as dining out, clothes or gadgets for financial protection cover means you don’t need to spend more from your monthly take-home. 

Speak to an expert 

Our partner CMME is an award-winning mortgage and protection specialist for contractors. Speak to one of their experts about your protection options or to review your existing policies. 

They are offering Kingsbridge clients a special offer should you choose to use their services – find out more here

*Prices from Confused.com data, they are dependent upon age brackets and are averaged across sales of all policy types and lengths for cover of less than or equal to £350,000 in 2020. This contains 84% of Confused.com customers and is correct as of October 2020. 


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