Future-Proofing for Contractors: Protect Yourself and Your Family

Contractors

Life has a way of throwing the unexpected at you, and any of us can be caught unawares. In some regards, contractors are more vulnerable than most, as they don’t have an employer with legal obligations, or colleagues to support them through life-changing events. Seen from another angle, though, this vulnerability can be a strength, as it forces contractors to take responsibility for protecting themselves, which can leave them better equipped to deal with whatever life throws at them.

CMME’s Guide to Protection for Contractors: Click here to download

In this article, we’ll outline some common situations that you might want to prepare for, and talk about how you might start those preparations. However, this is not an exhaustive list, and it makes sense to think about what your personal risks might be, and what other preparations you might need to make.   

Protecting your income if you can’t work

Contractors only get paid when they work, that’s the nature of contracting and when you become a contractor you accept that there might sometimes be periods when you don’t get paid. Most contractors have a contingency fund to cover them for short periods of sickness or downtime between contracts, but what if the issue is longer in duration? 

Serious illness and injury can potentially stop you working for years at a time, and in some cases, could result in permanent and profound changes to your life. There are some aspects of this that you simply can’t prepare for, but you can take steps to protect your income in the event that you’re suddenly unable to work in the long term.

Most contractors will struggle to save for this contingency, and the only sensible answer is insurance. What cover you need will depend on your situation, and it’s advisable to seek advice from a specialist expert, but common options include:

Income protection

This is a long-term insurance policy designed to provide an income in the event of accident or illness. Note that this is different from income protection for unemployment, which is generally not relevant for contractors.

Critical illness cover

Provides a lump sum on diagnosis of a covered condition, typically used for paying off a mortgage, making adjustments to your home or providing financial support for you and your family.

Protecting your family if the worst happens

As with protecting your income, this is something that many of us would rather not have to think about, but it really is worth a little discomfort to look after your family in what is likely to be one of the hardest times of their lives. There are two main areas to consider:

Insurance

There are a number of ways to provide for your family’s financial security after your death, and again the options you choose will depend on the situation. Once again it makes sense to discuss your circumstances with a specialist expert, but options include family income benefit, which will provide a monthly income for a set time, and life cover, which will provide a lump sum. You might also consider relevant life cover which replaces the “death in service” benefit offered by many employers, and can be funded via your limited company and offset against corporation tax.

Inheritance Tax

Another aspect that might require your attention is tax planning. There are a number of actions you might want to take, to ensure your family are able to hold on to as much of your hard-earned wealth as possible. Your accountant will be able to provide detailed advice about your specific situation. 

If everything works out as expected

The best-case scenario that most of us can hope for is that we end our working life in good health, looking forward to a long and active retirement. Given that this is where most of us hope to be heading, it’s amazing how many are not prepared for it.

The best advice is to start your pension provision as early as possible, as the earlier you start the easier it will be to save the amount you need. Saving for a pension is extremely tax efficient, so it’s also a good way to keep more of your hard-earned money our of the tax man’s hands.

As a first step, contact a contractor specialist like Contractor Wealth to talk over your options.

If your kids need your help

Most of us would like to help our children if we can, and young people across modern Britain are struggling in a number of key areas. With the cost of a university education spiralling, and the deposit on a first home out of reach for many young people, the “Bank of Mum and Dad” is becoming an important resource for an entire generation.

The strategy you use to save for your children’s future will vary depending on how much time you have, how many children you have and (if you know them) what their plans are. Options could range from opening a junior ISA for your six-year-old and encouraging a healthy saving habit, to re-mortgaging your home to release funds for your eighteen-year-old’s imminent Oxbridge adventure. Whatever your situation, speaking to a wealth management expert like Contractor Wealth could be a useful first step. 

If you make a mistake or cause an accident

Legal costs can be cripplingly expensive, and most contractors will struggle to cover them out of contingency savings. Legal bills could arise from a complaint about your work, an employee of the client tripping over your equipment or any number of other unforeseen events.

The only real protection is comprehensive business insurance that covers you for these risks. As a minimum most contractors will need professional indemnity, public liability and employer’s liability insurance. Contractor insurance experts Kingsbridge will be able to advise you on exactly what cover you need.  

If you have any questions or if we can help in any way, please contact our expert team on 01296 468 483 or email info@orangegenie.com.

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