I’m self-employed and am worried about how I will pay my bills if I get coronavirus. Should I be thinking about critical illness cover or income protection insurance?

I’m self-employed and the coronavirus has made me concerned about the risk of falling ill, not being able to work and struggling to pay my bills.

I don’t have any financial support from an employer and unfortunately don’t qualify for any of the government help via the new self-employment income support scheme.

Should I be considering taking out insurance, and which product would be best given my circumstances?

Allan May from specialist life insurance adviser, Cavendish Online, says:

It’s very natural that you’re having these worries. Being self-employed can be stressful at the best of times, but I imagine even more so given the current climate. The financial support being offered by the government is helping a huge number of people, both employed and self-employed, but it is true that not everyone will be eligible.

You’re right to consider whether insurance could help you here. Critical illness cover and income protection insurance are both products that cover you if you fall ill, but each product treats coronavirus slightly differently.

Interested in speaking to an adviser?

What is the difference between critical illness cover and income protection insurance? 

Critical illness insurance is a policy that pays you a lump sum of money if you fall ill with one of a number of specified serious illnesses, which are defined by the insurer. Thinking about your situation, a payout from a critical illness policy could be used to replace your income and cover your bills. Alternatively, you may want to pay off your mortgage, if you have one, so that you no longer need to make repayments. 

Income protection insurance, on the other hand, replaces your income if you are unable to work due to illness or injury, paying you a monthly benefit amount, up to around 70% of your gross pay. This regular monthly income would help to cover your monthly bills, reducing financial worries and allowing you to focus on the important things, like making a full recovery.

Do both types of insurance cover coronavirus?

Critical illness policies don’t currently include coronavirus as a specified illness, so in the unfortunate event that you contracted the virus, it’s unlikely that you’d qualify for a payout from your policy. There would, however, be the possibility of a payout if the virus lead to you developing other complications such as kidney, liver, heart or respiratory failure. 

As always with insurance, it’s important to carefully check the policy’s terms and conditions which will explain exactly what conditions are covered. 

It’s also worth being aware that most critical illness policies are in fact purchased with life insurance attached. So, if the worst were to happen, and you sadly passed away as a result of COVID-19, your family would likely receive a payout from the policy.

Income protection policies will typically pay out for any illness or injury that means you need to take time off work. So, if you were to develop coronavirus and became too ill to work, your income protection policy should pay out your monthly benefit as normal.

It’s important to know that income protection policies come with a deferred period, which is the point at which you start receiving monthly payments from your policy. If you buy an income protection policy with a long-deferred period, say three months, and then catch coronavirus, you may actually recover before the end of that three-month period, and therefore not receive a benefit payment from your policy.

Will I still need my policy when coronavirus is over?

The simple answer is yes.

Even though it is completely understandable to be worried about coronavirus at the moment, it is always important to think more broadly when considering your insurance needs. There are lots of other reasons and other major illnesses that might mean you’re unable to work in future. Being self-employed may also put you in a slightly riskier situation, simply because you don’t have the support from an employer to rely on. 

Both income protection insurance and critical illness cover exist to provide a financial safety net for you and your family. They are designed to protect the people you love and can provide you with a valuable sense of security.

With more time at home in the weeks, if not months, to come, perhaps you have an opportunity to think more broadly about your insurance needs, which will exist long after the coronavirus has run its course.

How do I buy critical illness cover or income protection insurance?

There are a number of ways to buy insurance but given that you’re probably not leaving the house currently, your best option would be to go online or speak to a financial adviser over the phone. 

At Cavendish Online, we offer various options to help you find the best insurance. You can apply for a policy online yourself, in just a few minutes, or you can speak with one of our specialist advisers over the phone, who can guide you through the process and help you choose the best cover for you and your family. 

Contact the Cavendish Online team on 01392 539 777 for help today.

If you would like to read more about the impact of coronavirus on insurance, you can check out this handy guide from Cavendish Online.

Your questions: Life insurance and the impact of the Coronavirus pandemic

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