Drewberry™ provide pensions, investment and insurance advice for Money to the Masses readers throughout the UK.


Case Study: Protection for Sole Trader

Meet Chris

Chris and his wife Sam recently bought a house together and took out a joint mortgage. Given that Chris is self-employed he doesn’t receive any sick pay and this was a worry because Chris is the main earner in the house and they wouldn’t be able to meet the mortgage payments and other bills if Chris couldn’t work.
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Protecting your income can be a minefield

As a result, Chris decided to see if there was any type of insurance that would pay his wages if he was too ill or injured to work and started having a search on the internet. Chris came across a whole load of different plans but wasn’t sure which ones were any good. There were payment protection plans, personal accident plans, accident and sickness plans and income protection policies, making it all a bit confusing.



Chris’s Income Protection

After making an enquiry on the Drewberry website Chris got a call from Dan, who specialises in advising on protection insurance for the self-employed.

Dan told Chris that given his manual occupation as a carpenter he really needed a specialist insurer that would cover him in his ‘own occupation’, so the policy would payout if he couldn’t do his job as a carpenter.

This was very important as many of the payment protection plans and income protection plans offered by the mainstream insurers would only cover him on a ‘suited occupation’ basis. This means that the insurer could say at claim stage that although Chris couldn’t do his job as a carpenter given his skills and experience he could work in a DIY store advising customers, and refuse his claim.


Obtaining own occupation cover

After checking which specialist insurer was coming out the most competitively priced, Dan recommended a plan covering 65% of Chris’ profit before tax, which was enough to cover the mortgage and his other bills, and would start paying him after one month of being off work. The plan could continue paying out right up until the end of his mortgage if Chris was never able to go back to work.

Chris particularly liked the insurer that Dan recommended because they had paid 97% of all claims made the year before, which gave Chris confidence that they would be there for him if he needs them.



Chris’ Life Insurance

As Sam wouldn’t be able to keep up with the mortgage payments if Chris was too ill to work, Dan also asked Chris if he had any life insurance to cover the mortgage if either of them passed away, and Chris said this was something they had been meaning to look into. As they had a joint mortgage that they both contributed to, Dan suggested a joint mortgage life insurance plan that would payout enough to cover the loan should either of them pass away.


Decreasing life cover for a joint mortgage

Given their mortgage was a repayment loan (where they pay both interest and principal each month), Dan recommended a decreasing term policy where the level of cover declines each year in-line with the amount of debt outstanding on the mortgage, which is the most cost-effective way of gaining cover.

Thus, after speaking to Dan, Chris and Sam were able to cover Chris’ income with the most suitable own occupation policy and also take out the most cost-effective life insurance to cover their mortgage. Dan suggested that if they have a baby to get back in touch to top-up their life cover.



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