How important is it to protect your income as a contractor

As a permanent employee, you were probably receiving several invisible benefits that you didn’t even know about. If you had an accident or long term sickness, you may have received 3 months of full pay while you recovered. If you died in service you may also have had a death in service benefit that would have been paid to your family.

As a contractor you won’t have any of these benefits in place, unless you have specifically chosen to.

When working as a contractor the main benefit is the day rate that you can earn. It’s likely to be quite a bit more than the equivalent you’d be earning as a permanent employee.

Your increased earnings have hopefully also afforded you and your family a better lifestyle. A nice house, good cars, a couple of decent holidays a year and regular meals out. 

So, what would happen if you couldn’t work for 3 months, due to an accident while doing the gardening. Or that pain in your back becomes so acute that you can’t sit at your computer all day every day and need to do something about it.

If you were working in a permanent role, you could have taken the time out without it impacting you financially.

Even worse, if you died, what impact would that have on your family. Do you have the insurance in place that would cover their lifestyle as well as the roof over their heads?

When you are contracting getting the right insurance in place needs to be a conscious decision. The two most important are life insurance and income protection insurance.

When you run your own company you can pay for your life insurance through your company. This saves you tax which means that you can afford to cover your family’s lifestyle as well as your mortgage. For the relatively small amount that it costs you, why wouldn’t you put it in place?

Income protection insurance, covers your earnings for a temporary period out of work due to an accident or illness. With the stats showing that 1 in 3 working age people will take time of work for an extended period, the odds are high that it might happen to you. Without it you won’t have any protection in place for this scenario. Which can have a significant impact on both you and your family. Which means that income protection insurance should be high up your list of priorities.

At Broadbench, we specialise in helping contractors get the right insurance in place, to cover their personal circumstances as tax efficiently as possible.

Find out whether you have the right cover in place and whether you could be saving tax by structuring it correctly.