As contractors and freelancers we’re pretty comfortable with understanding the basic commercial insurance we need; Professional Indemnity, Public Liability and Employer’s Liability. They are necessary and usually a contractual requirement for the majority of contracts. But what about protecting your lifestyle should the worst happen?
It can be easy to overlook Lifestyle Protection Insurance; insurance that protects you should the worst happen and you or key people in your business are unable to work. We’ve concentrated on this type of insurance policies in this article to give you a taster of what types of cover you should consider.
Life insurance tailored to you – a Relevant Life Policy
A few years ago, it was impossible to find levels of cover to rival ‘death in service’ life insurance cover if you were a small limited company. Now, a Relevant Life Policy (RLP) can provide this level of cover for Directors and shareholders of small limited companies.
When you start life as a contractor or freelancer, you’ll need to consider organising your own life insurance. A ‘Relevant Life Policy’ is a tax-efficient life policy designed for small businesses. You can normally insure up to 20 times your annual income (including dividends) and it’s the most tax-efficient way of providing life cover for Directors and Shareholders.
A Relevant Life Policy differs from personal life insurance as it is paid for through your limited company rather than by you as an individual, so the cost offsets corporation tax. We’ve covered RLPs in a separate article to explain the tax savings in detail. Read our RLP article here.
Critical Illness Cover
Working for yourself offers unrivalled freedom, but if you’re diagnosed with a critical illness that impairs your ability to work, critical illness cover can ensure that your financial commitments are taken care of.
Critical Illness Cover is designed to provide financial assistance when you are diagnosed with a Critical Illness covered by the policy. In addition to the core payment, some insurance policies also cover counselling and bereavement services.
To read more about Critical Illness cover visit Oviso’s website.
Income protection is an insurance policy that will pay out a monthly amount based on your income levels. As a director of a limited company this is based on your salary and dividend payments. It won’t provide the full income you usually earn (as it wouldn’t encourage you to return to work) but covers the essentials. The majority of policies pay 50-70% of the gross remuneration your policy is based on.
Income protection is important as it provides financial protection should you be unable to work for a period of time. You are 5 times more likely to be incapacitated and require income protection than die and require Life Insurance in your career.
There are many types of policy to cover varying personal circumstances and the length of protection you need (short or long-term protection). Find out more about Income Protection on Oviso’s website.
Key person insurance
Key person insurance is Life and/or Critical Illness cover that a business takes out to cover their key people as they would an asset. In simple terms, if a key person in the business dies or becomes critically ill and is therefore unable to work, the company receives a lump sum. Small companies that rely on a few key people can benefit from this type of cover as it provides valuable financial assistance to cover a drop in profits, recruitment and crisis management costs that are associated with the unexpected and immediate loss of a key person.
It’s not designed for single person businesses (freelancers and contractors) in the main as the money is paid to the business, but it can provide valuable protection in some circumstances. To find out more about Key Person Insurance, visit Oviso’s website.
Shareholder protection insurance
Shareholder protection insurance is designed to provide cover to remaining shareholders within a business in the event of a shareholder falling critically ill and retiring or passing away. The policy provides a pay out to the remaining shareholders that covers the fair value of the shares, so that they can be bought by the remaining shareholders and therefore retained by the core management team.
This is particularly important within small businesses where the shareholders are a close-knit management team that want to retain control of the business when a key shareholder leaves the business through death or ill-health/retirement. Single shareholder businesses do not require this sort of cover.
To find out more about Shareholder Protection, visit Oviso’s website.
This article was written by Fiona Todd, a protection specialist at Oviso, an independent insurance broker who specialise in providing lifestyle protection insurance for small businesses, freelancers and contractors. Find out why we recommend Oviso here.