Category Archives for Insurance

Do I need insurance if I’m self-employed?

If, like me, your work mainly involves sitting in a chair, you might not perceive it as particularly risky. However, it’s likely you’ll need some insurance to protect you against legal action. Anyone involved in giving advice and providing services has the potential to make mistakes – and mistakes can be costly. In this post, I’ll explain how you can protect yourself with Professional Indemnity and Public Liability insurance.

What is professional indemnity insurance?

Professional indemnity insurance protects people and business who provide specialist services. This can include advice, such as legal, design, and accounting; it also applies to more physical activities, including physiotherapy, hairdressing, or tree surgery. These are all occupations where clients could claim the service you provided lost them money or harmed their reputation.

In this event, a professional indemnity policy pays for a specialist solicitor to defend you and also covers other legal fees and any compensation. You’ve probably watched enough telly to know that a court case could consume a lot of time and money, even if you’re exonerated. Having a robust policy in place means you don’t have to worry about a claim taking over your life.

How much does professional indemnity insurance cost?

Naturally, the cost depends on the amount of cover and the riskiness of your business. For instance, if you’re a hairdresser, often the worst you can do is give somebody an unexpected mullet. They might need to wear a hat for a few weeks, but it’s unlikely to threaten your business. However, more specialist hairdressers who do perms and colours have access to potent chemicals and could cause lasting damage if something went wrong.

So, before speaking to an insurer, have a think about the type of work you do. What could go wrong? What situations could significantly impact upon the client’s livelihood? How much would it cost to put it right? Large multinationals are likely to be more litigious and to demand higher compensation. Indeed, bigger clients often ask for proof that you’re indemnified.

Check that any insurer understands your business. A cheap standard policy might mean you’re inadequately covered. And that’s a complete waste of your money. Speak to insurers on the phone and explain what you do. If your job is unusual, they’ll often consult underwriters before offering you a quote. Getting the right cover means peace of mind. Your professional association can probably advise on suitable cover and even perhaps offer a discount.

Since specialising in financial coaching, the cost of my insurance has increased significantly. Although I’m not giving advice, the fact that I’m even discussing money with clients makes it riskier than other forms of coaching. Financial advisors pay even higher premiums, as they’re directing clients to pursue a specific course of action.

I’m taking a break from my business, do I still need professional indemnity insurance?

Probably. The insurance needs to be in place when the work is done and when the claim is made. If the problems only come to light a few years later, you’re still liable. If you no longer have professional indemnity insurance, you’ll have to cover any costs yourself. Essentially, you need to protect past, as well as current, work.

Some insurers allow you to hibernate policies. This means you’re temporarily covered for past, but not future, work. The cost of premiums could be halved. You can switch the policy back on at any time. There’s also run-off cover for those who’ve stopped working altogether but require ongoing protection for past projects. This is required for professionals such as architects, doctors,  and chartered accountants.

What’s the purpose of public liability insurance?

Public liability insurance protects you against third-party claims of physical damage to people or property. You’ll need this cover if you visit clients or if they come to your premises. Again, the cost depends on the type of work you do and the environment in which you operate.

My policy covers me for workshops I run for different clients around the country. Their own insurance usually excludes external trainers, so I’m sometimes asked to provide a copy of my insurance certificate when agreeing the terms of the work. My sessions are fairly sedate – the biggest risks are probably damage caused by an extravagant arm gesture or blinding someone with my laser pointer – so the level of cover is relatively low. If you’re a fight choreographer, there’s a much higher chance of somebody losing an ear.

I’m also covered for clients who visit my office for coaching. I can’t imagine how I’d physically injure them, but you never know. I’m pleased to report an unblemished record so far, with no fatalities. As with professional indemnity insurance, consider what could go wrong and how much that would cost to fix.

Conclusion

Professional indemnity and public liability insurance might feel like yet another business expense. However, having this protection in place means you can focus on what you do best. For a relatively small monthly outgoing, you’ll have a legal team ready and waiting to fight your corner.

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Get in touch for a free no-obligation chat to see whether some coaching could help you plan your business.

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Should I pay for Mortgage Payment Protection Insurance?

If you’re a homeowner, your biggest direct debit is probably a mortgage payment. Given the rapid rise in house prices over the last decade, it’s easy to see how people fall behind on payments when they’re hit by sickness or unexpected unemployment. As with most eventualities, you can protect yourself against it – at a cost.

In this post, I’ll introduce Mortgage Payment Protection Insurance (MPPI), explaining how it works, what it covers, and what alternatives are available.

How does Mortgage Payment Protection Insurance work?

In return for a monthly premium, an MPPI policy usually covers your monthly mortgage payments for up to two years in the event of accident, sickness, or redundancy. Payments are typically capped at £2,000 or 65% of your salary, whichever is lower.1 Some policies also cover other major outgoings, such as Council Tax.

MPPI is sometimes referred to as an ASU policy. ASU stands for Accident, Sickness, and Unemployment. Unemployment is misleading, though, as the policies cover only redundancy – so, it’s no good if you’re sacked or decide to resign. To claim for redundancy, you need to be registered unemployed and actively seeking work. MPPI doesn’t cover voluntary redundancy, unless you’ve taken this option to become a full-time carer.

For the Sickness element, certain illnesses and pre-existing conditions are excluded, so you need to be clear on what’s covered by talking to the insurer. Don’t pay for something that you can’t use.

Many MPPI policies don’t pay out for the first 90 days, so you’ll require additional provision in the form of an emergency fund or sick pay from your employer. You can also opt to extend this deferral period to reduce the cost of your premiums.

Before signing up for any kind of income protection, it’s important to check your current sick pay entitlement. This ensures that there won’t be a gap or that you’re not paying for more cover than you need. For instance, if you’d receive six months’ full pay while on sick leave, you could defer your MPPI for that period. This reduces the likelihood of your insurer having to pay out, so your monthly premiums are lower.

Alternatives to Mortgage Payment Protection Insurance

Before buying or renewing MPPI, consider the alternatives. Would MPPI be enough for you? Do you have additional resources to cover your other financial commitments, such as food, heating, and credit card repayments? If not, it might make sense to look at Short-Term Income Protection (STIP) or Income Protection Insurance instead.

STIP, like MPPI, is short-term, but it covers more than your mortgage. Income Protection Insurance is similar to STIP buts keeps paying out until you’re able to return to work. Although more expensive than the other two products, it covers more medical conditions and provides longer-term security.

The Government offers some assistance, too. Support for Mortgage Interest (SMI) is a loan that you repay with interest only when you sell or transfer ownership of your home (or you can choose to repay it earlier). To be eligible for SMI, you need to be in receipt of a qualifying benefit, such as Statutory Sick Pay (SSP) or Employment and Support Allowance (ESA). The size of loan depends on the type of benefit you receive and various other factors. In some cases, it covers the interest on up to £200,000 of your mortgage. Note, though, this is just the interest – you’d need to get your lender to waive capital repayments or continue paying them yourself. For more guidance on SMI, take a look at the Money Advice Service resources.

Next Steps

Your mortgage lender almost certainly offers their own MPPI product that they want you to buy. Although this is convenient, it might not be the right policy for you. Check what’s covered then find out whether you could get a cheaper policy elsewhere. Unless you know the policy details it’s impossible to make an effective comparison.  Saving £10 per month could make a big difference over the lifetime of your mortgage.

If you haven’t done so already, investigate Short-Term Income Protection (STIP) and Income Protection Insurance to see whether either is a better option for you. Don’t forget other forms of support – your partner or family might be able to cover your main outgoings in the short term.

Set aside some time to read any policy you’re considering. As this is a complex area, you could end up paying for something that doesn’t suit your needs. Advisory brokers, although more expensive than going direct to an insurer, offer expert advice and guide you through some of the complexities. This is especially important if you have pre-existing medical conditions. Visit MoneySavingExpert for recommendations. You could also consult an Independent Financial Advisor if you’re looking at insurance during a wider review of your money situation.

Most of us buy homes for the sense of security, so make sure you’ve protected your most valuable asset.

This post is for information only and does not constitute financial advice.

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  1. If you’re self-employed through a limited company, this might be based on your payroll salary and not on any dividends. You need to check this with any potential insurer. []

What is Income Protection Insurance?

Each year, around 1m people in the UK are unable to work due to sickness or injury. One insurer claims that the average period of long-term ill health is 7 years. How would you cope in this situation? Income Protection Insurance is a policy that provides you with a guaranteed monthly sum if you’re unable to work for medical reasons.

In this post, I’ll explain how Income Protection Insurance works, what factors affect the costs, and why you might need it.

How does Income Protection Insurance work?

Income Protection Insurance is designed to cover your core financial outgoings while you’re coping with an illness or accident. Unlike many other types of income insurance, it continues paying out until you’re able to return to work and you can claim multiple times. Products such as Critical Illness Cover, on the other hand, pay one lump sum and apply only to specific conditions. Short-Term Income Protection and Payment Protection Insurance stop after a specified period.

Usually, you can cover up to 65% of your gross income. If you have a limited company and pay yourself mostly through dividends, you should check that your insurer takes these into account when calculating your maximum cover.

What does it cost?

As ever, the cost depends on your age, health, occupation, and lifestyle. And, of course, the length of the policy and the amount of cover. You might take out a policy that covers your direct debits and lasts until you’ve paid off your mortgage, retired, or when you no longer have dependents.

There are also three levels of cover that are generally available and determine the conditions in which the policy pays out:

  • Own occupation – you’re unable to do your own job.
  • Suited occupation – you can’t do your own job or a similar role that’s suited to your qualifications or experiences
  • Any occupation – you’re too ill for any type of work

Different insurers will have their own way of describing these levels, but you should be able to easily distinguish between them.

Own occupation is the most expensive level of cover, as this is the most likely. Any occupation is the cheapest, simply because it’s the least likely to pay out. It’s unlikely that you’d be rendered incapable of doing a home-based admin job, for example. The question is whether you’d want to find another job under such circumstances. If not, Own occupation would be most appropriate.

You can make a few other choices that affect the cost:

  • Deferral period – this is the time before which you start receiving the payments. The longer you defer it, the cheaper your policy. If you receive full sick pay for 3 months, you could opt for a 90-day deferral period.
  • Inflation-linked? – the policy is more expensive if you want the payouts to increase with inflation. This could be important if you’re covering day-to-day costs such as food and heating, but less so if its purpose is to repay a fixed-rate mortgage or loan.
  • Guaranteed vs reviewable premiums – with guaranteed premiums, you know what you’ll be paying for the remainder of the policy. While more expensive initially, you won’t suffer an unexpected hike. Reviewable premiums are usually reviewed every 5 years and could increase.

Do I need Income Protection Insurance?

Income Protection Insurance is of most benefit to anyone with large financial responsibilities who is self-employed or has limited sickness benefits from their employer. However, first check what other provision you have in place, for example:

  • Sick pay from your employer
  • Significant savings/assets
  • Partner or family who’ll support you

Also review your other insurance cover to ensure there isn’t overlap. For example, you might have Payment Protection Insurance (PPI) on your mortgage or other loans. Here are the main differences between Income Protection Insurance and PPI:

PPI

Income Protection Insurance

SCOPEUsually covers a specific loanUsually covers 65% of your gross monthly income
DURATIONOften lasts 12-24 monthsPays until you return to work
COSTPremiums are reviewable, so can increaseYou normally have the option to guarantee the cost of your premiums
LEVELTend to be Suited occupation or Any occupation (see above)You can choose Own occupation (see above)
CONDITIONS COVEREDSometimes unclearTends to be medically underwritten, so you know exactly what’s covered

Not all insurers cover mental health problems, so check any prospective policy carefully. You can download a useful guide from MIND on how to choose the right cover for your situation.

For impartial general guidance, take a look at the Money Advice Service guide to Income Protection Insurance.

Next Steps

If you decide to go ahead, devote some time to reading any policy you’re considering. As this is a complex area, you could end up paying for something that doesn’t suit your needs. Advisory brokers, although more expensive than going direct to an insurer, can give you expert advice and guide you through some of the complexities. This is especially important if you have pre-existing medical conditions. Visit MoneySavingExpert for recommendations. You could also consult an Independent Financial Advisor if you’re looking at insurance during a wider review of your money situation.

Whatever you do, make sure you have a plan.

This post is for information only and does not constitute financial advice.

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