The dark truth behind unemployment cover for contract workers!

In these uncertain times, Contractors are increasingly drawn to insurance policies that offer the promise of a safety net in times of unemployment. Sadly in all but a handful of circumstances these policies are not worth the paper they are written on in the event of a claim.

It is time to wise up to the scam that is unemployment cover for Contractors and make sure that you take the necessary steps to protect yourself rather than paying premiums each month on a policy that is unlikely to ever pay out.

In over 13 years of offering independent financial advice to Contractors, the team at ContractorFinancials has never put in place unemployment cover for a client, despite currently receiving at least half a dozen enquiries every day on this subject alone. Whilst providing unemployment cover would be very lucrative for us commercially we pride ourselves on doing the right thing by the clients within our niche market and these policies are quite simply unsuitable for Contractors. You work under a unique employment status and any insitution or broker that offers this insurance as an option to Contract workers is clearly happy to ignore the all important small print in the quest for profit.

Contractors can purchase tailored insurance policies to cover them for loss of income during periods of illness or injury and can also take out life or critical illness cover that pays out a lump sum to family in the event of death or serious medical conditions. However insurance policies claiming to cover Contractors for periods in between contracts are invariably riddled with caveats that void the policy when you come to make a claim.

Beware of the small print!

It can be difficult to prove that Contractors are unemployed as even when you're not working on a contract you will probably remain employed by your limited company or Umbrella Company. Many policies state in the terms and conditions that for a contract to be valid it must be for a minimum term of 12 months which obviously leaves you open to IR35 related issues and so is not the favoured way that most Contractors will structure their working patterns. The terms also stipulate that that contracts must have been renewed at least once which again leaves Contractors open to issues with HMRC if they work at one client site for too long.

Even in the unlikely prospect that you except the dangers of yearly contracts and have been with that one client for a renewal to kick in many schemes go on to insist that you must have at least 6 months remaining on your contract when you are given notice of its cancellation. It is almost inevitable that, having paid out for costly premiums over a lengthy term, your contract is terminated with 5 and a half months left to run and the insurance is null and void.

Save for a rainy day

The money that would have been spent on paying these premiums, could instead have been put to better use in a high interest savings account. That £50-60 cost each month can quickly start to build up a safety net to self protect for periods without a contract, and with the government guaranteeing savings up to £50,000 you know that your own 'insurance policy' will definitely pay out when you need it to.

Whilst "self insurance" can take discipline, setting up a standing order to pay money directly into a savings account will ensure that you always put the money aside.

Alternatively, invest in an insurance policy that you know will pay

Whilst it is likely that in a downturn you always have the unpalatable option of taking a lower contract rate until the market improves, there is far greater potential danger to your current lifestyle as a result of you suffering an injury or illness. If you are unable to work at all, your income would cease completely and meagre state benefits could mean dramatic changes to your lifestyle. You may not be able to afford mortgage and general bills and could rapidly face arrears and potential homelessness.

Given the ever growing importance of a clean credit history,any break in earnings can also have very serious long term consequences for your ability to raise future finance.

Thankfully it is possible for Contractors to guard against the impact of accident and sickness with properly tailored, freelancer friendly policies that will pay out a tax free monthly sum to cover household bills and other expenses. You can protect up to 75% of your income with this comprehensive insurance and it costs as little as £20-30 a month to benefit from the peace of mind it offers.

Similarly, Contractors can also protect your family with Life Insurance that works in the same way as the death in service benefit enjoyed by many permanent employees. Life cover will pay out if a Contractor dies and can offer your family the financial security to enable them to cope at this emotional and financially devastating time.

Benefit from expert advice

At ContractorFinancials we pride ourselves on our proven track record of providing the right policies for our clients. Irrespective of any financial gain that we would otherwise have made, we will never advise you take Unemployment Cover because there is almost a certainty that it won't pay out when you need to call upon it. However, we will happily help you to find watertight accident and sickness cover to help protect you and your family from hardship.

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