Being self-employed has its rewards and these include to a certain extent, your ability to choose what hours you work and the amount of money you earn.
The reality can often be somewhat different with long hours and irregular income at certain points in your self-employed career and one crucial aspect of working for yourself is the fact that you often don’t have a financial safety net to protect your income when you are unable to work.
It only takes something like a car accident injury or an illness to throw your financial situation into turmoil, which is why it is so important to try and take steps to protect your income so that you don’t suffer so much when something unforeseen happens to you.
Replacing your income
If you are employed by a company and fall ill, there is a sickness benefit scheme that will often provide you with a continuing income during your recovery period, but if you work for yourself, it is down to you to make your own financial arrangements.
This is where an income protection policy may well help you to continue paying your bills while you are unable to work.
In return for a monthly payment to an insurer, you can benefit from a long-term insurance policy known as income protection, which replaces part of your income if you become unable to work due to illness or disability.
The idea behind an income protection policy is to provide you with a regular monthly income until you are able to work again, or for a fixed period of time, depending on the terms of the individual policy.
There is often some confusion regarding the difference between an income protection policy and one that offers critical illness cover.
With an income protection policy, there is a waiting period before the payments to you start and the longer you choose between claiming and receiving payment, will have an influence on the monthly premiums.
Income protection covers most illnesses that render you unable to work either in the short term or for a longer period.
Critical illness is fundamentally different in that it is designed to pay a one-off lump sum if you are diagnosed with a specific serious illness.
You may well decide that you want to arrange cover that covers all potential scenarios that prevent you from working and allows you to avoid falling into financial difficulties due to an inability to generate a regular income.
Make sure you take qualified and independent advice on the best policy for your needs.
Peace of mind
Salary security is not something you can enjoy when self-employed, so you need to consider your options if you are unable to work.
An estimated one million workers per year find themselves unable to work due to an illness or injury, so it would probably allow you greater peace of mind if you considered how a lack of income would affect you and took some steps to set aside a regular amount of money for emergencies.
It might also help ease your concerns if you had some sort of insurance cover that provided a financial safety net when you need it.
Andrew Hollis works in financial planning and has a sound understanding of self-employment issues. He enjoys the opportunity to share his insights online and is a regular contributor for a number of different B2B and consumer websites.