Securing protection if you are self-employed

When advising self-employed clients, it is crucial advisers build insurance policies to match them. FT Adviser have produced a guide to advising the self-employed and one of our advisers, Jamie Smith, has commented on the potential challenges and advantages.

One potential challenge that is unique to self-employed workers when insuring their income against long-term ill health is around how they define their earnings, suggests Jamie Smith, a financial adviser at Foster Denovo.

He says: “Typically most insurers will provide a maximum benefit of between 50 per cent to 75 per cent of a self-employed worker’s average net profit over the last three years.”

However, Jamie outlines two potential issues with this: “First, the net profit may understate a worker’s earnings and, secondly, self-employed earnings can vary significantly from year-to-year and it may be that a few years after setting up the plan, their earnings have changed.”

He adds: “Both of these could mean that a worker cannot get the level of cover they need.”

But according to Smith, the advantage self-employed workers have is the opportunity to establish their own employee benefits package and tailor it to their own personal situation.

He says: “Yes, they will have to pay the cost  of the cover themselves, but for small company owners who choose to remain self-employed, it might be possible for their limited company to pick up the cost as a tax-deductible expense which can have tax advantages.”

Read the full article on FT Adviser here.