Self-em­ployed play­ing ‘in­come roulette’ by not sav­ing enough

The Herald - - PUZZLES -

ALEXAN­DRA MOR­GAN

ac­ci­dent that pre­vents them work­ing, against a na­tional av­er­age of 21 per cent, and 29 per cent fear fall­ing sick, com­pared to 24 per cent across all work­ers.

They have good rea­son to be anx­ious. Ac­cord­ing to in­dus­try body the As­so­ci­a­tion of Bri­tish In­sur­ers (ABI), ev­ery year about a mil­lion peo­ple find them­selves un­able to work due to a se­ri­ous ill­ness or in­jury.

Justin Harper, head of pro­tec­tion pol­icy at LV=, said: “The labour mar­ket has changed markedly in re­cent years, with self-em­ploy­ment con­tin­u­ing to rise.

“But it’s of­ten the case that self-em­ployed peo­ple and small busi­ness own­ers lack the safety net of an em­ployer’s ben­e­fits.

“This means they risk hav­ing to rely in­stead on state ben­e­fits, which can in­volve a lengthy ap­pli­ca­tion and wait, with no guar­an­tee of any sup­port.”

State ben­e­fits for those who can­not work be­cause of sick­ness or dis­abil­ity are mea­gre, with em­ploy­ment and sup­port al­lowance capped at £73.10 for the first 13 weeks, ris­ing to a max­i­mum of just £109.30 there­after.

Any­one ac­quir­ing a se­vere long-term dis­abil­ity may get an ad­di­tional £15.75 to £61.85 a week, while those who find it hard to carry out daily tasks or get about could also re­ceive per­sonal in­de­pen­dence pay­ments of be­tween £21.80 and £139.75.

De­spite their lack of a

The ma­jor­ity of the small busi­ness own­ers asked said that all or most of their in­come went on pay­ing their day-to-day ex­penses.

fi­nan­cial safety net and the low level of state sup­port, only a hand­ful of those work­ing for them­selves act to pro­tect their earn­ings.

Just four per cent of those tak­ing part in the LV= study had in­come pro­tec­tion cover, com­pared to a na­tional av­er­age of 11 per cent, with more than 42 per cent mis­tak­enly be­liev­ing their em­ploy­ment sta­tus made them in­el­i­gi­ble.

Crit­i­cal ill­ness in­sur­ance, which pays a lump sum on di­ag­no­sis of a lim­ited range of se­ri­ous con­di­tions, is more pop­u­lar. How­ever, for most peo­ple, in­come pro­tec­tion (IP), which makes a tax-free monthly pay­ment to sup­ple­ment sav­ings and ben­e­fits in the event of ac­ci­dent, ill­ness or un­em­ploy­ment, is a bet­ter in­vest­ment.

Some­times also known as per­ma­nent health in­sur­ance, IP cov­ers far more even­tu­al­i­ties and can be used to meet all sorts of ex­penses.

It also should con­tinue un­til the pol­i­cy­holder re­cov­ers, re­tires or dies – al­though cheaper, short-term poli­cies are also avail­able.

The un­em­ploy­ment com­po­nent is not an op­tion for the self-em­ployed but they are el­i­gi­ble for ac­ci­dent and ill­nes­sonly poli­cies.

The cost of pro­tec­tion de­pends on the ap­pli­cant’s age, the level of cover re­quired and the length of de­lay be­fore pay­outs start. Providers will also take into ac­count health and fam­ily med­i­cal his­tory, and the type of job the ap­pli­cant does, as some oc­cu­pa­tions are riskier than oth­ers.

To work out how much cover you might want to take, add to­gether your monthly mort­gage or rent costs, debt re­pay­ments, typ­i­cal house­hold bills and other reg­u­lar out­go­ings then add a sum on top for un­ex­pected ex­penses.

Be­cause pay­ments are tax-free, the max­i­mum you can gen­er­ally ap­ply for is around two-thirds of your typ­i­cal pre-tax earn­ings.

Poli­cies are avail­able through in­ter­net com­par­i­son sites or di­rect from providers.

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