Income protection is worth its weight in gold, writes Karen Gallagher as it gives peace of mind and frees you to concentrate your energies on running your business.
If you own and run your own business you will understand that planning is everything. From business resources to customer service and cashflow, careful planning of each and every aspect of your business will stand you in good stead no matter what the business environment or the challenges you face.
But have you planned for the possibility of a serious illness or injury that prevents you from running your business and earning an income? How would your business cope and how would you be able to pay for your household mortgage, electricity and gas bills and the expenses of day to day living? As a business owner you are responsible for funding your pension, so how would you continue to ensure that it will meet your needs when you retire?
You probably already have some form of life insurance to ensure that, in the event of your untimely death, your dependants’ financial needs will be taken care of. However, during your working lifetime, you are far more likely to suffer an illness, disability or injury which leaves you unable to work for a period of time.
Many employees will be entitled to some form of sick pay from their employer which will tide them over for the first few weeks or months of an illness or disability. PAYE workers would also then qualify for State Illness Benefit which will provide a small financial cushion (currently just €188 personal rate per week).
If you run your own business, however, you are highly unlikely to qualify for sick pay or State Illness Benefit. This means that if an illness or disability leaves you unable to earn an income – you are on your own.
Given the risks, shouldn’t planning for the possibility that illness or disability could leave you unable to earn an income be right at the heart of your business plan?
Fortunately there is a product which is designed to protect business owners from the financial risks associated with an illness, injury or disability. It’s called income protection and it is a form of insurance which ensures that your financial commitments will be looked after in the event of you suffering any illness, injury or disability which leaves you incapable of running your business and earning an income.
Income protection
With income protection, you pay a monthly premium which is based on your income, your health status, and the level of benefits you are looking for. Your premiums qualify for tax relief at your marginal rate. Usually you can choose to protect up to 75% of your income and index link your premiums and benefit levels to ensure that your cover keeps pace with your lifestyle and financial commitments.
To help with your business’s forward planning, you can also take the option of fixing your premiums for a set period. Should you suffer any injury, illness or disability preventing you from running your business and earning an income, then subject to medical assessment and following a waiting period of your choosing, your income protection policy will pay you an alternate income of up to 75% of your gross income at the time you fell ill or suffered an injury.
This payment will continue until such time as you are ready to return to the workplace or until the cease date of your policy, usually chosen to mirror retirement age.
This alternate income should allow you to cover your domestic financial commitments and continue to contribute to your pension until such time as you are fit to return to running your business once more.
One of the biggest benefits of income protection is that it does not simply pay you an alternate income when you are unable to work. Some providers have policies that are designed to assist your return to running your business as quickly and seamlessly as possible. Occupational therapists and workplace consultants are available to work with you to arrange any changes in work practices required to accommodate your return.
If your illness or injury prevents you from returning to your previous role, then your policy provider may offer a career change consultancy service to assist you in finding an alternative career direction.
Financial advice
As a business owner you will be used to turning to experts such as accountants and solicitors for specialised advice. So when it comes to income protection it makes sense to contact your financial advisor for advice about choosing the right cover for you and your business. Like any expert, they are best-placed to review your circumstances with you and choose an income protection policy that meets your needs. Although relatively straightforward, Income Protection offers a variety of benefit levels, waiting periods and premiums so it’s worth taking the time to properly consider your options with the guidance of your advisor.
Above all, however, income protection gives you the peace of mind of knowing that if you become sick or disabled and unable to work, your financial commitments are covered. Because that peace of mind frees you to concentrate your energies on running your business, income protection can be worth its weight in gold.
