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?
Insurers have made clear that coronavirus is not covered by the vast majority of policies
Will Kirkman of This is Money replies: If you’re thinking of taking out insurance to protect yourself from financial troubles brought on by coronavirus, it’s vital you make sure that your policy will actually pay out if you make a claim.
Traditionally, critical illness cover and income protection insurance, as well as certain types of unemployment cover, protect your finances if you are unable to work due to illness or redundancy.
This means if you’re taking out insurance specifically to protect against the virus and you buy the wrong cover you will be paying for something you don’t need and may still be left financially vulnerable if you are unable to work.
On top of this, insurers have started to pull their unemployment insurance products in the wake of the coronavirus outbreak, so your options may be limited.
Meanwhile others have started to add exclusions to income protection insurance, which would exclude payouts for those off sick with the virus.
Get an assurance from your insurer in writing
The wordings of your policy determine whether a claim will be successful, but these can often be written in a way that make them tricky to understand.
It’s these policy wordings that insurers often fall back on when trying to get out of paying a claim.
If you are going to take out cover, make sure that your insurer or broker explicitly states that your policy includes cover to protect you if you were to fall sick due to the virus.
Get an assurance in writing from your insurer or broker that you will be covered if you are unable to work due to coronavirus.
This won’t guarantee you’ll get a payout if things go wrong, but it could help further down the line if you want to claim that the policy was mis-sold to you.
And the Association of British Insurers has said the majority of policies won’t pay out to those self-isolating.
This is Money asked life insurance broker Cavendish to explain what these different types of insurance do in more detail, and whether they are likely to protect you in these circumstances.
Allan May from 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.
So 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 per cent 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.
Income protection insurers are introducing exclusions for new policies so that they won’t have to pay out if their policyholder cannot work to falling ill with the coronavirus (stock photo)
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 coronavirus, 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.
While it is not too late to buy insurance, it’s worth knowing that some income protection insurers are starting to add explicit coronavirus exclusions for new customers, meaning that these new policies wouldn’t cover the virus.
Other insurers are introducing new application questions to understand your recent travel and exposure to infected individuals. Depending on your answers, your policy may be postponed or delayed, until the insurer is certain that you don’t have the virus.
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