Understanding Income Protection Insurance For Freelancers In 2023

As of 2022, there are currently 4.3 million freelancers in the UK, and by 2023, an extra 100 thousand may join them

AS OF 2022, there are currently 4.3 million freelancers in the UK, and by 2023, an extra 100 thousand may join them. Many are attracted to freelancing because it offers freedom, but most contractors go weeks without a day off. This can compound stress and lead to health problems.

However, it isn’t like most freelancers are working hard because they want to; they do it because they need to. Contractors aren’t afforded the same rights as traditional employees.

That means they rarely get vacation pay, sick pay, or PTO and are rarely guaranteed work. If a freelancer takes time off, they could lose everything. For this reason, income protection is often a matter of life and death, even if individuals don’t have family or children to look after.

What is Income Protection Insurance?

If you’re asking yourself, “what is income protection insurance?” then you’ve come to the right place. Income protection insurance offers financial security based on a percentage of your typical income. They often pay up to 70% of your pre-tax income for a set period of time.

Most income protection plans have a waiting period, but after you wait through this period (which is usually one month to one year), you’ll start receiving payment. Typically, the waiting period starts the moment you make a claim and can prove you’re partially or totally disabled.

With that said, insurers will enforce exclusions where they won’t pay out benefits, even if you can’t work. 

These exclusions depend on your insurer but will often include the following:

  • Mental health conditions
  • Injuries sustained during times of civil unrest
  • Injuries sustained due to committing a criminal act
  • Pregnancy discomfort or miscarriages
  • Pre-existing health conditions you didn’t disclose
  • Attempted self-harm to any degree
  • Use of non-prescription mind-altering substances

Whether you’re a full-time freelancer or a part-time student in the gig economy, you need to stay on top of your finances. Income protection insurance allows you to do just that when you’re unable to work. With that stress off your back, you’ll be able to relax and recover faster.

How Income Protection Insurance Works

Each income protection policy has its own definition of disability and range of benefits. It’s important to shop around before settling on one provider, premium costs, or insurance type.

How Premiums are Determined

Your premiums are what you pay for your policy every month, and this cost is determined by several factors. Your occupation, smoking status, age, pre-existing medical conditions, annual salary, and type of coverage will change your bill considerably, often by hundreds of dollars.

Manual occupations, old age, a large amount of pre-existing conditions, and overall poor health will cause you to pay high premiums. Women tend to pay more, as they’re more likely to claim.

Premiums are either stepped or level. A stepped premium starts off cheap but gets more expensive as you age. A level premium stays the exact same. Ideally, you’ll get a level premium when you’re younger, as you’ll lock in your rate and pay less once you reach old age.

How Payouts are Determined

Payouts are determined by your policy and the nature of your injury. For example, if you fall ill or develop a disability, the waiting period begins the day you’re diagnosed. If you were in an accident, the waiting period starts the moment the injury occurred (under most circumstances). 

The waiting period you choose will be determined by your savings. If you feel you need money right away, pick a shorter waiting period, but keep in mind your premiums will be much higher.

Claimants can receive payments for up to two to five years. They can choose whether they want to set their benefit amount (agreed value policy) or if they want it based on their income at the time they make a claim (indemnity value policy). An agreed value policy is more expensive.

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