With many pest managers opting to be self employed, income protection is one type of insurance that should be seriously considered.
Taking out income protection insurance is a sound idea for those working in high risk industries such as the pest control industry. What happens if there’s an accident and it’s not possible to go to work for weeks, days… or even years?
Common issues with income protection policies include adequacy of the coverage and underinsurance. Even for pest managers who do make the decision to take out income protection insurance, there is the need to review the level of cover annually as their personal conditions may have changed.
Calculate your level of cover
It’s possible to insure up to 75% of your monthly income. Refer to the information below, provided by one of our leading insurance companies. Put simply, it’s your take home money after business costs.
Self-employed pest managers
Self-employed applicants are sole traders, partners, shareholders or employees of their own business, (e.g. Pty Ltd company, trust or partnership). Monthly earnings are based on the client’s share of the business profits they are entitled to and/or receive directly or otherwise. Business profits are calculated in the usual manner that profits and losses in a business are calculated.
Some items can be added back from the profit and loss, such as the client’s share of:
- Donations
- Salary/wage and/or director’s fees paid to the clients
- Superannuation paid to the clients
- Salary/wage and or superannuation income split with spouse
- A percentage of private use of a motor vehicle (if not already taken into account)
- Depreciation costs, depending on the item and the amount (if not already taken into account).
Speak to your adviser or broker to determine your level of cover and premium amounts. Benefit levels and policy conditions can be customised to suit your needs and budget.
Income splitting
If a spouse is employed in the business primarily for income splitting or taxation purposes, benefits may be based on
the income generated by the breadwinner. If you don’t factor this into your calculations and get approval from the insurer, you could be grossly underinsured.
Waiting periods
Every pest manager’s needs are different. Most insurance companies offer a choice of waiting period before they start to pay claims – the longer the waiting period, the cheaper the premium. Remember that income protection premiums are fully tax deductible, making them more affordable every year.
You may choose to take a longer waiting period if you have savings or other assets to call upon. Most businesses have invoices outstanding, which are for jobs that you have completed and are waiting to be paid for. Whilst it is not advisable to rely on this, you may consider taking a longer waiting period to lower the cost of your premiums, if premium affordability is a concern. This may not be appropriate for businesses that are seasonal. The waiting period means you are self-insuring for the period if you can’t work due to illness or injury.
Levels of cover
The type of income protection insurance you purchase will depend upon your occupation and duties. You can insure yourself for ‘accident only’ cover or ‘sickness and accident’, although it’s best to insure for sickness and accident as this offers comprehensive cover. Accident-only cover has many exclusions to be aware of and is cheaper accordingly.
Benefit periods
The benefit period is the length of time during which a benefit is paid. This can be 12 months, two years, five years or until you reach a certain age e.g. 65 or 70 years old. Some occupations may only qualify for a two- or five-year benefit level. Having a longer benefit period offers better income protection for more serious illnesses or accidents. If you don’t qualify for a longer benefit period then you may need to consider other insurances such as ‘total and permanent disability’ to cover long-term income protection needs.
You will also need to speak to your adviser about your choice of agreed value and indemnity benefits. The sooner you look at the different premium options – for example, stepped or level payments – the sooner you may be able to save money.
Lawrence Kennedy, Surety Life
Your adviser or broker will be able to provide much-needed guidance and advice to ensure that you have a sound plan and competitive package. The above information in not intended as advice; if you require advice please contact your adviser or Surety Life.
