When you are hired as a permanent employee, you enjoy a host of perks, including the benefit of collecting your salary even when you are out of the office on a sick day. But as soon as you lose your employment status, you will not receive any pay when you fall sick. Your savings alone may not be sufficient to see you through some difficult moments like an illness or severe injury. Thus, the income protection policy may be considered.
Contractor income protection is a policy that agrees to make a monthly payment to contractors when they are sick. The policy will continue making the payment even when one is seriously ill until they retire. The amount of payments made depends on the contractor’s income and the deferred period chosen.
You can choose to invest in the policy directly or through a company. Whichever method you opt for, the IP policy will ensure that you are paid some monthly income when sick. Here are tips to help you invest in contractor income protection.
How much protection cover you need
The amount of cover you need is dependent on many factors. However, your monthly income is the most critical aspect. If one earns $2,000 per month but spends $1000, then they only need a cover of $1,000. But they must ensure that the cover consists of the savings they make regularly. It helps them to set aside some amount to use in retirement.
Find out the cost of the policy
The cost of the cover depends on individual circumstances. The age, the deferred period, your occupation, and your health are top on the list. But age is what counts most. Another peripheral factor but which will be considered is your smoking status.
- The provider: You may not just pick on Tom, Dick, and Harry as your income protection policy providers. It would be best if you had an experienced provider that understands how contractors operate. Besides, they should have a good record in meeting previous claims. A provider that deals with freelancers and small companies could be the best option for you.
- The terms of the policy: The terms of a policy count a lot. It must categorically state that you will receive pre-stated benefits if it becomes difficult for you to continue engaging gainfully in your occupation. It eliminates the provider’s temptation to stating that you can still carry out your work even when incapacitated. Also, the policy must continue providing the cover until you retire.
How you make the payments
The provider that allows you to make the payment personally is better than one that requires you to pay through the company. Paying it in person makes it an allowable business expense, and therefore you will deduct it from your income before it is taxed. But if it is an executive policy, you will be required to pay tax on any payments made through the policy.
There are many tips you may need to consider when investing in contractor income protection. However, your income, monthly expenses, and the cost of the cover are the most vital. Also, the provider and the terms of the policy are among essential issues worth considering.