10/12/2014

By Tom Conner, Director, Drewberry Insurance


Since the 2010 General Election the Government has repeatedly pledged more support for small businesses, such as last year’s announcement of a £45m funding package for SMEs.

As an entrepreneur, sole trader or small business owner the economic conditions are probably more conductive to SMEs than they have been for a while, certainly since the financial crisis of 2008. Yet an area still frequently underestimated and neglected by those running the firm is financial protection.

As an employee you can expect to receive a decent amount of sick pay, usually three months for full time employees rising to six month for public sector workers. However, for SMEs that option does not exist so it is important to have your own policy in place and the policy that is most suitable to protect a salary is Income Protection.

The most popular ‘protection’ product tends to be Life insurance which sells over 1m policies every year, which pays out if you die within a specific term (about 1 in 20 policies are claimed upon). Yet that’s less likely to happen than becoming long term ill and unable to work (approximately 1 in 7 people claim).

There are many insurance products in the market that claim to protect your income and all do the job to varying degrees of success, but Income Protection is regarded by most experts as the Gold Standard. Why? Because it replaces your salary tax-free over the long term (potentially paying out until you retire) for any illness or disability that prevents you being able to work.

It is important to remember that there is a world of acronyms and jargon around insurance designed to disguise substandard products. PPI, ASU, MPPI are all examples of income replacement policies that are significantly inferior to Income Protection. There is another product call ‘Short Term Income Protection’, which also offers good but limited coverage. Where possible, go for full Income Protection. Without it, the only resource to fall back on if you can’t work long term will be savings and government benefits.

As 1 in 10 of us will be out of work for over six months due to ill health during our working life it is Income Protection is one of the most important financial products to buy. My advice for the self-employed and entrepreneurs is to make Income Protection your priority.