With contractor numbers continuing to grow, the increase is causing a 'time bomb' for life insurance and income protection cover, Contractor Calculator reports.
According to findings from the latest 'Kingston Report,' conducted by the Association of Independent Professionals and the Self-Employed (IPSE), UK contractor numbers have risen by 8.7% in the last 12 months and by more than a third (35.15%) since 2008.
While these figures are a positive sign of the contracting industry's strength, there are fears that newcomers are unaware of the realities and insecurities involved in this type of work.
As life and income protection insurance expert Andy McBride explains, too many new contractors fail to realise that they are leaving the "comfort blanket of employment" behind, and so too the benefits that go along with it. Meanwhile, others "assume that any private life insurance and income protection cover they have is sufficient."
But with benefits such as those relating to 'death in service' ending when an employee leaves a full-time position, it's important that contractors have the right policies in place to protect their families should anything to happen to them.
This, McBride argues, requires a complete change of mind-set for new contractors, as along with the freedoms and financial gains that come from a contracting position, there is also a greater responsibility on the individual to control their financial future.
With this in mind, he advises all new contractors to speak with a financial advisor who specialises in contractors and freelancers, and who can create a tailored protection scheme to suit their needs. Most should consider the following two options:
Relevant life cover: This can replace the death in service benefit held during full-time employment.
Personal life cover: This can be out a lump sum of money, and/or be linked with a mortgage, which can lower premiums. It's suitable for both umbrella company contractors and limited company contractors.
Another issue is that existing life insurance or income protection schemes may not be suitable to a contractor's new lifestyle. While many well-paid employees invest in income protection policies to support them if they were unable to work or have lost their job, these schemes may not pay out as much when they switch to contracting work, and their income starts to fluctuate.
So, those with income protection should also have their existing policy reviewed and, if necessary, transfer to a different provider.