Income Protection for Contractors
Helping contractors across Ireland safeguard their income.
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Working as a contractor comes with many advantages. But, access to the State Illness Benefit is not one of them.
Whether you are self-employed and have a limited company or operate as a sole trader, you may be financially vulnerable should you be unable to work.
In the case of an illness or injury, your income could reduce to zero overnight.
A sobering but realistic scenario for many contractors.
At this point, paying rent, a mortgage or even basic living expenses may become a struggle.
Income Protection for Contactors also allows you to put a financial safety net in place.
Income Protection for Contactors
Income Protection is an insurance option for contractors which pays you up to 75% of your salary if you’re unable to do your job because of any sickness, disability, or injury.
Income Protection can help you pay your mortgage, household bills, and general living expenses while you focus on getting better.
Income Protection for Contractors at a glance:
- Allows you to cover up to a maximum of 75% of your salary.
- Tax relief is available on premiums.
- Protect your earnings right up until retirement age.
- Access to rehabilitation programmes.
- Flexible options on your deferred period. This ranges from 4 to 52 weeks.
emero tip 
As a contractor in a non-manual occupation, you will fall under Class 1. This means you will receive the cheapest possible premiums.
Sectors where contractors' Income Protection is most popular
- IT
- Finance
- Healthcare
- Healthcare
- Consultancy
- Fintech
- Event Management
- IT
- Finance
- Healthcare
- Consultancy
- Fintech
- Event Management
- IT
- Finance
- Healthcare
- Consultancy
- Fintech
- Event Management
Do contractors need Income Protection?
Yes. As a contractor, you are likely a sole trader or have a limited company.
Both leave you financially exposed. If you were unable to work, would you have the means to cope?
Even significant savings will dwindle quickly.
Therefore, Income Protection Insurance is vital.
Without access to any sick pay benefits, you will need Income Protection. It is for this reason Income Protection is becoming more and more popular among contractors.
Income prior to being sick/injured | €750 per week |
Income with Income Protection (75%) | €562.50 per week |
Income without Income Protection | €0 |
What are the chances of you being unable to work?
Contractors are no different from anyone else. We are all at risk of injury, illness, or disability. Even though it is not something we like to think about.
Whether it be a car crash or freak sporting accident. Below we look at the chances of you being unable to do your job for a period of time.
The below is for a 38-year-old, male, non-smoker.
Chance of being unable to work for 1 month or more before retirement age – 47%
Am I entitled to the State Illness Benefit as a Contractor?
No. As a contractor, you will not be eligible for the State Illness Benefit.
The company you are under contract with is not under any obligation to provide sick pay.
Therefore, having Income Protection in place is vital for anyone in a contracting role.
As a self-employed individual, you may be entitled to apply for the government’s long-term sick pay. However, the eligibility criteria are strict and you can only apply after being off sick for 12 months.
You will then be required to prove you are unable to work for a further 12-month period.
The alternative is to prove you are permanently incapable of working.
The State Illness Benefit is currently €208 per week. However, there are criteria surrounding eligibility. Those who are self-employed will not be entitled to any benefits.
State Illness Benefit | Entitled |
Sole Trader (Contractor) | ❌ |
Self Employed (Contractor) | ❌ |
Employee | ✅ |
What does Contractor Income Protection cover?
Income Protection will cover you once you are unable to work due to any illness, injury, or disability. However, it does not cover redundancy.
It will safeguard you financially from anything that prevents you from doing your job.
There may be exclusions such as claims resulting from self-inflicted injuries or drug and alcohol abuse.
How do you pay for Contractor Income Protection?
As a contractor, you will likely have a choice of how to pay your Income Protection premiums.
There are two types of Income Protection policies:
This is where the contributions are paid via your limited company. The company owns the policy and it is taken out in your name.
The cost of premiums in an Executive Income Protection policy may qualify as a business expense and can be offset against corporation tax.
Should you pay for the policy using your post-tax income, you will be eligible to claim tax relief on your premiums.
This tax relief will be at your marginal tax rate whether that be 20% or 40%.
Premium | Tax Relief | Real Cost |
€100 | 40% | €60 |
What to consider when buying Income Protection as a Contractor
1. What percentage of your salary do you need to insure?
The first step is to calculate how much of your salary you would like to insure.
Although the maximum is 75%, a lesser percentage may be sufficient in some cases.
For example, if you earn €80,000 per year, you may still be able to pay household bills and other expenses with €40,000. In this case, 50% of your salary may be enough
Sum Assured | Premium | Tax Relief | Real Cost of Premium |
€40,000 | €92.76 | 40% | €55.65 |
The above quote is for a contractor. The individual is a 37-year-old, non-smoker.
The retirement age is 65 and the deferred period is 26 weeks.
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2. Length of the Deferred Period
The deferred period is the length of time you must be out of work before your benefits start.
There are several deferred period options available. The shorter the deferred period, the more expensive the premium.
As a contractor, you may need a shorter deferred period than someone working as an employee who may receive sick pay.
Deferred Period Options |
4 weeks |
8 weeks |
13 weeks |
26 weeks |
52 weeks |
The below table shows the decrease in the cost of premiums as the deferred period increases.
4 weeks | 8 weeks | 13 weeks | 26 weeks | 52 weeks | |
Premium | €205.52 | €168.89 | €117.87 | €78.50 | €67.46 |
Most applicants opt for either a 26-week or 52-week deferred period.
3. The age you would like the cover to cease
A major benefit of Income Protection is the potential long-term financial protection it offers.
The average claimant receives benefits for five years. However, in some cases, a claim may last much longer.
The older the retirement age you chose for your policy, the more expensive it will be. Most of us plan to work until we reach our sixties. Therefore, a retirement age to match this is recommended.
Retirement Age | 55 | 60 | 65 |
Premium | €58.02 | €67.81 | €92.76 |
How much does Contractor Income Protection cost?
As a contractor, your occupation will be seen as a lower risk compared to other industries. Therefore, this will be reflected in your premiums.
Many of those working as a contractor will fall under either class 1 or class 2. Below we look at two examples.
Age | Occupation | Class | Monthly premium | Monthly premium (after tax relief) |
40 | Architect | 1 | €82.77 | €49.66 |
40 | Site Manager | 2 | €110.30 | €66.18 |
**The above includes a deferred period of 26 weeks and a retirement age of 65.**
Variables that effect the cost of your premiums
Age
Health
Occupation
Smoker
Deferred Period
Age
Health
Occupation
Smoker
Sum insured
The percentage of salary you would like to cover will have a significant impact on your premium. How is Contractor Income Protection taxed?
An Income Protection policy through a limited company is treated differently than a personal plan.
There is a different process for claiming tax relief.
- Personal Income Protection – eligible for tax relief at your marginal tax rate either 20% or 40%. Tax relief can be claimed online through Revenue.
- Executive Income Protection – the company paying for the contributions can treat these as a business expense and offset it against corporation tax.
Top tips when buying Income Protection as a Self-Employed Contractor
1. Choose a guaranteed policy
It is important to choose a premium that is guaranteed to remain the same throughout the policy.
Avoid a reviewable policy. A guaranteed policy will cost slightly more but will help you to avoid any surprises or premium increases down the road.
2. Ensure there is a ‘change of occupation’ clause
This additional benefit is often unknown. It is important to notify the Life Insurance provider should you change occupation.
Once the ‘change of occupation’ is listed in your policy details, your cover should continue regardless of what your new job entails.
Do not automatically assume this is part of your policy. Speak with your advisor and read the small print before starting a policy.
3. Look for a ‘hospital cash’ option
Most Income Protection policies offer a ‘hospital cash’ as an additional benefit.
It will pay you a daily replacement income once you have been in hospital for more than 7 days. This means you do not have to wait until your deferred period is over.
This is currently provided by all insurers by may change in the future so worth keeping an eye on.
Who provides the best Income Protection for Contractors?
Many of the insurer’s product offerings are similar. Their additional benefits also overlap and are almost identical in many cases.
Therefore, it often comes down to price and service. The best course of action is to enlist the assistance of an experienced Insurance broker such as ourselves.
We can assess the entire market and ensure you choose the provider most suitable for your needs.
At emero, we work alongside and provide you access to Ireland’s leading Life Insurance provider. These include:
- Aviva
- Royal London
- Zurich
- Irish Life
- New Ireland
Why is Income Protection important for contractors?
Working as a contractor has many benefits. However, access to the State Illness Benefit is not one of them. Therefore, Income Protection Insurance plays a pivotal role.
As a contractor, you are likely self-employed or a sole trader. Therefore, you are more exposed to the risk of losing your income than employees within a company.
Not being eligible for the State Illness poses a significant financial risk. In the case of illness or injury, your income could be reduced to zero. At this point, paying rent, mortgage or even basic living expenses may become a struggle.
With more and more people choosing contracting as their source of employment, creating awareness around Income Protection is becoming more important.
Thankfully there has been a significant uptake in Income Protection among contractors in recent years.
What are the next steps?
Taking out Income Protection could be one of the most important decisions you make.
If you are out of work for days or weeks you will likely be fine. However, anything longer than this and the situation can become difficult.
Even substantial savings will dwindle fast. Having €10,000 on hand is likely only the same as a two- or three-months salary.
It is important to think about what happens after this? Income Protection will provide you with the option of long-term financial assistance.
The earlier you take out a policy, the cheaper it is. Call us today and protect your future.
Phone | |
In-Person Meeting | Contact via phone or email |
Video Call | Contact via phone or email |
Providing specialised Contractor Income Protection advice.
Phone: 01 963 0436
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Income Protection for Contractors - FAQ's
Most contractors will fall under Income Protection Class 1. This means you will be eligible for the cheapest rate of premium.
Class 1 is those in an occupation that does not require manual labour or physical activities.
Find your occupation class here.
Yes. If you have an Executive Income Protection policy these premiums will be paid through the company. In this case, the contributions can be treated as a business expense and offset against corporation tax.
If you have a Personal Income Protection policy, you pay the premiums yourself and will be eligible for tax relief at your marginal rate.
Some contractors choose to add a Specified Illness Cover. However, it does come at an extra cost and will have to be paid for personally with after-tax income.
Level | Conversion Option |
€48.85 | 54.75 |
Considering you may already be putting Income Protection in place there will likely be a cost element to consider.
Nothing. Income Protection and Salary Protection are identical. They both offer the same service and allow you to cover up to 75% of your salary.
As in the case of some financial products, they are referred to in different terms.
Both Income Protection and Salary Protection will pay out should you be unable to work due to illness, injury, or disability.
What does Income Protection Cover?
Income Protection covers you from anything that prevents you from doing your job. Once your deferred period has passed, benefits will begin to be paid.
These benefits will continue to be paid until you either:
- Reach the retirement age agreed in your policy, or
- Can return to work
Whichever of the above comes first.
This is where Income Protection has a major advantage over other insurance options such as Specified Illness Cover.
What does Income Protection not Cover?
Income Protection is designed to cover you when unable to work due to an illness or injury.
Therefore, there are certain situations that are not covered. These include:
- Redundancy
- Maternity leave
- Working in a foreign county
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