An overview of income protection insurance for contractors

Many contractors we speak to enthuse about the lifestyle and the pay. But if you are a contractor, no matter what your specialisation, you are vulnerable to hardship should you be unable to work. Contractors are personally responsible for taking out appropriate cover in the event that they get sick (or die). There’s no automatic entitlement that you’d receive as an employee.

Statistically speaking dying before you retire is less likely than becoming incapacitated in some way. This suggests that making sure you can still take care of your family financially should be a contractor’s priority. But generally UK contractors lag behind those of other nations in taking out appropriate income cover.

There are of course many different types of policy out there. When evaluating policy options you want to ensure that it’s your income that’s protected and that a policy is likely to pay out when needed.

For example, critical illness pays out a lump sum if you happen to have one of a limited number of illnesses. But it won’t pay out indefinitely when you can’t work. That is the job of income protection insurance and precisely why freelancers and contractors take it out once they understand the value of having a policy in place. The key question is: would it make you or your family’s life more secure?

Of course even when it comes to evaluating income protection cover not all policies are equal. It should go without saying, but it needs to be said, that your policy must cover you for being unable to carry out a specific occupation, namely your own! Some policies won’t pay out if you can do some form of work, even if it’s not your own occupation.

There are other considerations in structuring a policy that’s tailored to your needs. One of these is the “deferred period” which is the gap between becoming incapacitated and the benefit being paid. For example, at DG Mutual, we can offer deferred periods from 1 day to 52 weeks. A policy should also cover you until you retire. Some policies will also generate a lump sum.