Income Protection
Income Protection
When running a business, the unexpected absence of a key Director or Partner due to illness or injury can have a significant impact on both the day-to-day operations and the long-term stability of your company.
Most business owners insure against the financial impact of death, but it is equally significant to think about what would occur should a key person in the business be incapacitated and not be able to work, possibly for a prolonged length of time. This is where Income Protection policies can help, they provide a protective safety net to both the business and the people that make it successful.
What is Income Protection?
Income Protection is a type of insurance policy designed to provide a regular income if the insured person is unable to work due to illness or injury. In a business context, these policies can be tailored to protect the interests of the company itself or to provide direct support to the affected Director or Partner.
There are typically two ways an Income Protection policy can be structured for a business:
- Business Income Protection: This is a policy that will provide a periodic income to the business to help cover the expenses related to the absence of an important person. This can be anything like bringing in a substitute employee, re-allocating tasks or just keeping the cash flow going through a rough time. Income Protection can ensure there is minimal disruption to the business by making sure there is the financial capability to adapt and stabilise.
- Personal Income Protection for Directors/Partners: Alternatively, the policy can be set up to pay the income directly to the ill or injured Director or Partner. This provides them with financial security during their recovery, allowing them to focus on getting better without the added stress of lost earnings. The policy will typically pay out until the individual is fit to return to work, or for a pre-determined period agreed upon when the policy is taken out.
Why is Income Protection Important for Businesses?
The absence of a key person can create a ripple effect throughout a business. Not only does it place additional strain on other team members, but it can also lead to lost opportunities, delayed projects, and even a decline in client confidence. For smaller businesses, where Directors and Partners often wear multiple hats, the impact can be even more pronounced.
Income Protection policies can reduce the impact of such risks, as they are a stable source of finances in times of uncertainty. To the business, this will translate to the ability to keep on running smoothly, paying financial obligations as well as maintaining important employees. To the individual, it is the comfort of knowing that their personal finances will not be threatened because of a lengthy absence in the workplace.
How Does an Income Protection Policy Work?
When a Director or Partner covered by the policy is unable to work due to illness or injury, the policy will start paying out after an agreed waiting period, often referred to as the “deferred period.” The payments will continue until the individual is able to return to work, or until the end of the policy term if they are unable to recover.
The payouts are usually calculated as a percentage of the persons income or financial requirements of the business so that the assistance offered is substantial and viable. Policies may be tailor-made to reflect the needs of the business in consideration of the role of key people, size of the company and its activities.
The Broader Benefits of Income Protection
In addition to the direct financial benefit, Income Protection policies can be used as an important tool in attracting and retaining the best employees. The existence of a safety net, which they know about, can help Directors, Partners and employees have a more peaceful mind and this can create an atmosphere of loyalty and dedication. It also shows that the business cares about the welfare of its people and it is willing to invest on their safety.
Summary
Income Protection is a frequently ignored yet vital part of a comprehensive business protection plan. These policies ensure continuity, stability and peace of mind to all concerned since they provide a regular income to the business or the affected individual in times of sickness or accident. Income Protection is a prudent and sensible investment for any business which would suffer should key people in the business were unable to work.
Protect Your Business with Income Protection
If key people in your business were suddenly unable to work due to illness or injury, could your business cope? Income Protection is often overlooked, but it’s a critical part of any robust business protection plan. At Howard Wright, our expert advisers can help you secure a policy that provides financial stability and peace of mind when it matters most. Call us on 0345 688 4939, complete our Smart Enquiry Form, to safeguard your business against the unexpected.
Disclaimer: This article contains information from sources believed to be reliable but no guarantee, warranty, or representation, express or implied, is given as to its accuracy or completeness. Howard Wright Ltd does not undertake any obligation to update or revise any future statements. Past performance is not a reliable indicator of future results. Investments can go down as well as up and actual results could differ materially from those anticipated. This article is for information purposes only and has no regard to the specific investment objectives, financial situation or particular needs of any person as such, the information contained in this article is not intended to constitute, and should not be construed as, investment or financial advice. Appropriate personalised advice should be taken before entering into any transactions. No responsibility can be accepted for any loss arising from action taken or refrained from based on this publication. Howard Wright Ltd is Authorised and regulated by the Financial Conduct Authority.
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