Going it alone

The effect of an employee's absence from work as a result of ill health can have a significant impact on the productivity of any business. Staff are always at risk from accidents as well as serious and minor illnesses, which costs industry some £11bn in lost working time each year. This adds up to an incredible 7.8 working days lost per employee, according to the Confederation of British Industry (CBI).

But for self-employed people, the effects of sickness can be particularly damaging. For example, in a one-man band, absence as a result of ill health or incapacity, can seriously impair the business' ability to meet deadlines, close deals and provide the consistent level of service that clients demand.

Time off work means loss of business and, most importantly, a loss of income for the self-employed person and their family.

It may also be necessary to employ a replacement to cover the cost of absence, increasing costs at a time when business income may be falling. Getting people back to work quickly will minimise any impact on the bottom line.

Perhaps this is why IFAs ' many of whom are self-employed ' are one of the biggest purchasers of protection products and why many recognise the huge potential this sector offers.

Counting the cost

For the self-employed, income dries up as soon as they can no longer work and, without the luxury of employee sick pay, the sooner people get back to work the better. A variety of protection health cover options are available to ensure self-employed people do not lose out unnecessarily if they fall ill or have an accident.

Swift and flexible medical treatment can cut the cost of time lost through illness and maintain productivity. With private medical insurance (PMI), self-employed clients can be guaranteed prompt treatment, even for non-urgent conditions, as well as the option to plan their schedules and to state where and when they wish to be treated, and by whom. How many self-employed people can afford to wait six months or more for an operation that will allow them to return to work?

PMI provides flexible cover for treatment for the majority of medical conditions. It is designed to pay for the specialist treatment of acute diseases, illnesses and injuries and covers out-patient, day-patient and in-patient treatment by consultants and other health care professionals. Some schemes now also offer the opportunity to cover pre-existing conditions.

Aside from loss of earnings, the cost of having private medical treatment if not insured can be prohibitive. For example, the cost of a heart bypass is about £12,500, hernia repair costs around £1,230 and a hip replacement costs roughly £6,500. However, a number of PMI schemes will cover these costs in full. This includes the cost of the room, personal meals, nursing care, drugs and dressings, X-rays, scans and theatre charges. There are policies that offer full cover for the fees charged by physicians, surgeons and anaesthetists, as well as pre-treatment consultancy and aftercare.

However, it is not only the self-employed who are at risk of an illness or accident, and the cost of medical bills for a family member who is unwell may be just as damaging financially. Most of us cannot afford to waste time worrying about ill health but, according to the British Heart Foundation, more than 300,000 people in the UK have a heart attack every year. Meanwhile, the Office for National Statistics has found one in three people can expect to develop cancer at some time in their lives.

Peace of mind

Some policies offer peace of mind, as well as saving time seeking medical advice, by offering people comprehensive guidance and support via a confidential helpline. Trained in a wide range of specialities, a team of nurses are available 24 hours a day, every day of the year. One policy in particular gives customers access to a team of nurses, with one named individual who will relate specifically to them and play a long-term role giving one-to-one advice on health issues. This includes health programmes such as weight management, stopping smoking and coping with stress.

PMI is not the only form of protection that is particularly relevant to the self-employed. Income protection and critical illness schemes are sensible options for self-employed people to consider, as it is essential to keep up with financial commitments in the event of illness. Income protection will replace income if unable to work and subscriptions are usually based on your client's occupation. Sales of these policies rose by 6,000 in 2000 from 174,000 in 1999.

Apart from the loss of income to the self-employed person and their family, the cost of medical bills and other financial commitments, such as mortgages and household bills, may place a huge strain on the pocket. People may take it for granted that the State will provide for all their needs until they are able to return to work, but often the support provided by the State is not enough. State benefits are only there to provide a subsistence allowance, which may not be enough to maintain the current lifestyle to which people may be accustomed.

One of the main perceptions of the general public is that the State will look after us if we are ill, yet statutory sick pay is currently only a maximum of £62.20 per week for 28 weeks. Once this has passed, there is incapacity benefit rising to a maximum of £69.75 per week after a year off work. It is obvious that this could leave a huge gap in the incomes of most families.

An income protection scheme can provide significant benefits for those who are self-employed and should be a key component of most IFAs' recommended product lists. It is designed to provide a regular monthly payment if a person is unable to work or carry out key activities of daily life due to a disabling illness or injury. By replacing part of lost income it can help to reduce the long-term financial impact of a prolonged illness. The money provided may help with personal bills, or even to hire additional help for the business while on the road to recovery.

Whereas an income protection scheme provides a regular monthly payment to a person who is unable to work, critical illness cover helps relieve the financial strains of the situation by paying a tax-free lump sum. This may go towards financial commitments such as mortgage repayments or to pay for extra help needed to recover from the illness.

Cash relief

Essentially, critical illness cover pays out a lump sum (or an income in some cases) after the diagnosis of a specified serious illness, injury or a major operation. This cash can help relieve the financial impact of the illness or injury and, if your clients have a business, mortgage or other financial commitments, it could fill an essential gap in their financial planning.

Critical illness cover provides a cash benefit for many serious medical conditions or major operations. Nearly 30 different conditions are covered in comprehensive schemes. Almost all products include cover for:

• Heart attack.

• Coronary artery surgery.

• Balloon angioplasty.

• Major organ transplant.

• Stroke.

• Kidney failure.

• Alzheimer's disease.

• Cancer.

• Multiple sclerosis.

• Parkinson's disease.

Cover can also be provided for burns, coma, loss of sight, hearing or limbs and permanent total disability if your clients are unable to work or look after themselves.

Long-term view

Alternatively, those who are self-employed may also want to look towards securing their future and their family's future with schemes such as long-term care and life insurance.

We are all living longer and, increasingly, it is likely that most of us will need some form of elderly care, whether it be at home, in a residential or nursing home. One in three women and one in five men will need nursing care at some time in their lives, according to M&G Reinsurance.

One relatively new innovation in the market is the link between income protection and long-term care. This has great potential in a growing market. These products have two benefits, one that covers a person for being off work sick pre-retirement, which then turns into cover for an individual after retirement if they need long-term care. These products provide cover for whole of life and do not stop at retirement like many other plans.

Most self-employed businesses are family run. These plans can therefore have the long-term benefit of preventing the need for a business to be sold in the future to pay for care costs.

To ensure that the family is provided for financially when a self-employed person dies, there is the option of taking out life insurance cover. A life insurance scheme would pay either a one-off cash lump sum on diagnosis of a terminal illness or death during the period of cover. This one-off payment would obviously be a huge relief to families who had just lost their main income provider. Alternatively if cover had been taken out on a key person in that business the cash lump sum would be useful in keeping the business up and running.

In the current 1% commission world, many IFAs are realising the benefits of re-visiting existing clients to talk to them about their protection needs. The self-employed are among the most vulnerable and are a good place to start.