Written by Ian Youngman    Thursday, 29 July 2010 14:22    PDF Print E-mail
Self-cert mortgages pulled which puts self-employed in hot seat
Matt Morris: Income protection can pay out for longer and for many things Matt Morris: Income protection can pay out for longer and for many things
Income protection insurance pays you an income if you become unable to work due to sickness or injury. Some policies only pay for mortgage costs, while others just protect specific loans or credit cards. Anything offered by your bank or loan company will usually be overpriced, cover for a short period and not for the self-employed.
Income protection is an insurance policy that provides you with a monthly tax-free payment if you cannot work due to accident or sickness. It is designed to cover the cost of your essential outgoings such as mortgage, loan and credit card repayments, food, utility bills and council tax.
The maximum amount available will depend on the policy you choose but is usually the lower of a fixed sum or a percentage of your earnings; such as up to 60% of your normal gross monthly income.
Many short and long-term covers can be bought online from insurers or from specialist providers.
Short-term income protection covers are designed to help if you have a short –term illness, and usually only cover you for up to 12 months.Long-term ones cover you for many years.
For someone who has been self-employed or running a business for several years, proving income when claiming is not easy, as you will have tax accounts. Those who have recently become self-employed will have difficulty in proving any claim. For the self-employed, it is possible to buy cover for unemployment and redundancy, but almost impossible to claim on it.
What insurances do you need if you become self-employed?

If you are genuinely self-employed, not a contract worker, then you need to consider insurance. If you work from an office or shop or workshop, you need conventional business insurances, so talk to an insurance broker. If you are one of the millions of people working from home, then you may need to amend your existing covers or buy special ones. Whatever type of self-employed person you are, full or part –time, the first thing to do is to tell your home and car insurers of the change of occupation. If you do not then all cover could be void.

Mike Powell of insurance analysts defaqto advises, “For motor insurance, a self employed person will need cover for personal business use which generally means a higher premium is charged and an insurer may need a split between business and personal mileage. For home insurance, check if your policy automatically or will provide cover for business equipment under a standard home contents insurance policy.” Many policies will only cover your computer and other equipment of a home office. If you take a laptop or phone out with you, check if cover applies out of the house too.

Direct Line has a policy for home-based businesses, that covers business contents and stock, public liability, loss of income following a fire or flood, and cover for theft of business money at home or in transit. Cover can be extended to include buildings and contents of a workshop, garage or outbuildings within your property, employers liability , portable business equipment cover for items such as laptops and mobile phones taken out of the home, and legal expenses cover. This highlights the need to check if your home or home business policy covers anything connected to you business kept in an outside shed or garage.

If you have other policies you must tell the insurers that you are now self-employed. For most life insurance it will make no difference. On income protection and critical illness policies, insurers vary. Some will make no change, others will charge more, and a few will say that cover no longer applies.
A problem that any self-employed person has is that income is not regular. LV= has just made a change on its short -term mortgage and lifestyle protection product. A mortgage guarantee has been added that uses the average regular monthly mortgage payments over the previous 12 months if you cannot provide proof of earnings.
Matt Morris of LifeSearch advises: “The best product for the self-employed is income protection as it pays out potentially until you retire, not just for 12 months, will usually pay claims for mental health and spinal conditions, and payments can be used to pay for anything, not just your debts or mortgage.”
Jennifer Gilchrist of Scottish Provident warns,’ Self-employed individuals may find it difficult to obtain cover but there are products available. Some contracts can be set up quickly with limited or no medical information provided but are likely to contain a high number of exclusions and limitations.”
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