Self Employed Income Protection

I am a Director of an SME and I am considering implementing some form of Income Protection plan to compensate me if I am out of work due to illness or injury. Is this a good idea and what are the benefits of having this in place?

Your income is what makes your world go round. It pays the bills, allows you to enjoy your home life, holidays with the kids and provides for a roof over your head.

Think of all the items in your life that are based on your ability to work and earn an income – food, car, holidays, socialising, day to day expenses associated with looking after your children, college fees and much more.

If you are self employed it may be difficult to qualify for state benefits. You will be forced to depend on your savings or may have to rely on your business continuing to pay you an income in your absence, even though you are no longer contributing to the success of the business. In the current tough economic environment this may not be a sustainable option. Many businesses are hugely reliant on the owners of the business and it may even be the case that without your constant attention the business would suffer greatly.

How common is this event? Somebody who is currently 35 years old has a 1 in 6 chance of being out of work for over 6 months due to illness or injury at some stage during their working life*.

So, what options are available?

Executive Income Protection is available from most Life Companies. Obviously some plans are more comprehensive that others and some are more expensive than others. However, most products do have some common features, such as:

• Tax Relief is available to your Company on the cost of the cover as an allowable business expense for tax purposes within certain limits.
• You may cover up to 75% of Income.
• The Provider of the Policy will pay a monthly benefit to your Company. Your Company would use this to pay you an income if you are out of work due to illness or injury for a defined length of time, typically up to retirement age if you so wish.

Having an Income Protection Plan in place will allow you the space and time to hopefully get well, without the added financial pressure of you becoming a financial strain on your business. It may also free up cash flow within the business to allow an extra employee to be taken on in your absence in order to ensure the business survives whilst you are focusing your energy on getting back to good health.

Your biggest financial resource is your ability to work and the income you derive from this. Without the ability to work, your lifestyle would change dramatically.

*Source: Central Statistics Office, 2007