Protect the future of your business

A funny place to be asked a question about insurance.

Last week I was asked a question atop a 160ft gantry at Magna Science Adventure Centre seconds before doing a bungee jump.

Part of the Jumpmaster's job is to calm the jumpers' nerves as best he can, by keeping them thinking. Whilst my ankle straps were being attached to the bungee rope (no matter how expert they are, you can't help but think you need to double-check they are doing their job properly!), he asked, "So what do you do for a living?"
"I sell life insurance", I replied, peering over the gantry edge at drop beneath. The Jumpmaster and his crew member found this a lot funnier than I did, at the time.

He then asked a question I've been asked several times before, but usually in much less unusual situations than this, "What's the difference between insurance and assurance?"

I explained that the two terms refer to different things but are often used incorrectly. Insurance describes a policy which has a fixed term, and MIGHT pay out. Assurance usually has no fixed term and WILL pay out when a certain event happens.

Think about annual travel INSURANCE. You pay for a year's cover, but you hope you won't have to claim on it. In the same sense, a life INSURANCE policy to protect your home whilst you pay off a mortgage, for example, lasts until the mortgage is paid off. It is designed to pay out IF you die before the end of the policy. However, we all hope to outlive our mortgage!

A life ASSURANCE policy is designed to pay out WHEN you die, not IF. These are often called whole of life plans, as opposed to term insurance policies. They often have a cash value attached to them as well, which a term policy doesn't.

Anyway, the bungee rope was attached properly, and my life INSURANCE policy continues on towards the end of its term.

Self-employed face protection ‘gap’ risk

An increasing number of people have become self-employed in recent years. If you are among them, you may have found the switch has left you without the employment benefits you previously took for granted.

Between 2008 and 2012, the number of people whose main job was self-employed rose by 367,000. Sixty per cent of this increase occurred between 2011 and 2012 – a possible result of the recession. The number of self-employed people in the UK now stands at 4.37 million, representing 14.5% of the working population.

Making the change from being employed to self-employed is clearly a big step – and it’s one more people are taking. But while some may find their income rises, it can be easy to forget about replacing lost employee benefits including sick pay and life insurance.

Lost employee benefits

Many employed people automatically benefit from life insurance, arranged on their behalf by their employer. This would pay a multiple of their annual salary were they to die, which could then be used to pay off a mortgage or provide funds to support their family in the future.

They may have also received a proportion of their salary for a period of time (that exceeded the statutory sick pay levels) if they were unable to work due to illness or injury, and benefitted from access to private medical treatment. Clearly moving from employment to self-employment would mean these benefits cease, potentially leaving a protection ‘gap’.

Plugging the protection ‘gap’

Fortunately, the insurance cover you may have benefited from as an employee is also available to you as a self-employed individual – and it may be more affordable than you think. 

Income protection insurance will pay you a monthly income to cover your living expenses should you be unable to work through illness or injury, and should be considered an essential piece of protection. It can help prevent your family suffering financial hardship, and help you recover more quickly without the burden of financial worry. Many insurance companies also provide support for customers to help them

return to fitness as quickly as possible.

A life and critical illness plan will pay either a tax-free lump sum or a regular income should you suffer a serious illness, or die, and can help secure your family’s financial future.

Private medical insurance may be considered less of a priority than either income protection or life insurance, given the treatment you are entitled to from the NHS.

For those seeking to replicate all the benefits they may have enjoyed when employed, there are a range of policies available at varying price levels.

Are you covered?

If you are self-employed, it is easy to ensure that your employment status doesn’t put your long-term financial security – and that of your family – at risk.

To discuss your protection needs, speak to your financial adviser.

How long could you survive without your salary?

What would happen if you were off work for week? A reduced income may be paid in the form of statutory sick pay (SSP), or you might receive your full salary if your employer is generous. If you're self-employed you can't claim SSP or company sick pay from someone else.

What if you were signed off work for 3 months?

How about 2 years? The remainder of your career?

Just how long could you survive financially?

These are not scare tactics - these are simple questions about which too many people don't think until it's too late.

Too late might be when you've been unable to work for 3 months, your contractual sick pay period is ending, your savings fund has run dry and you now have to survive on state benefits.

Too late might be when you approach retirement and are more likely to need time off work for health reasons.

Too late could be when you are diagnosed with a medical condition which limits the work you can do, and therefore your retirement plan has to change.

Protect Yourself

Some ways people are protected against this are : a) Having a very affluent family who could and would replace your lost income if you can't work; b) having enough cash available to pay yourself an income similar to that which you earn now; or c) by taking out an insurance policy so your household income remains at a similar level even if you have to leave your job due to illness or disability.

a) A minority of people are fortunate to be in this group, and insurance may or may not be right for them;
b) Do you have enough cash to survive until retirement?
c) This last option seems like it could be expensive, doesn't it?

Well, c) isn't necessarily expensive - it all depends on the risk of you making a claim. A 65-year old smoker working as an explosives operative with severe back problems is likely to be uninsurable.

For most people who don't work in high-risk jobs, or who aren't already suffering serious illnesses income protection is a sensible and affordable way of making sure that the household income could still be received every month.

What is it worth to you?

So what is that level of cover worth to you? £10/month? £25/month? £50/month. Or look at it another way - 1% of your salary? 3% of your salary?

It may surprise you to know that for a lot of people, it ought not to be a million miles away from these figures. Of course, as I mentioned earlier, the higher your risk, the less of a good deal you might find.

The irony is, as with most forms of insurance, that the more you are in need of cover, the more expensive it is likely to be. Those in their late teens/early twenties will often not see the point in spending, let's say for example, £15/month for the next 45 years, as they feel the likelihood of a claim is so low it is worth the risk. Conversely, if you were to ask people in their fifties who have had to change occupations due to health or illness if they would have taken such a policy when they were twenty, what do you think those people would say? Chances are, they would wish they had taken out such a policy earlier.

Many people think they don't need insurance until it is too late. Here is part of a famous Winston Churchill quote:

"If I had my way, I would write the word "insure" upon the door of every cottage and upon the blotting book of every public man, because I am convinced, for sacrifices so small, families and estates can be protected against catastrophes which would otherwise smash them up forever"

Maybe it would be sensible to speak to your financial adviser to find out what it would cost you to protect your income?

Dealing with negativity at work

Whilst this might appear slightly off-topic at first, I think this is a really useful article if you are experiencing difficulty dealing with such people, be it at work or in your personal life. It does relate to my blog's usual subject matter, as being happy at work is one thing that can have a significant impact on your financial future.

Mashable: How to Deal With Your 5 Most Negative Co-workers. http://google.com/newsstand/s/CBIwt_WD5w8