We explain all the main points about income protection and how self-employed workers can benefit from these policies
What is the best income protection for self-employed?
Income protection insurance works as a safety net, helping to replace any lost income if you are off work due to illness or injury. Self-employed workers are often at a higher risk if they need to take sick leave, as they won’t have access to traditional employee benefits like sick pay.
There are a few different types of income protection and a range of providers offering these policies in the UK. Doing some research before choosing your policy can be key to finding the right level of protection at a suitable price.
SUMMARY: You don’t have to buy income protection insurance when you are self-employed, but it is worth thinking about. It can be very useful in avoiding financial difficulty if you become seriously ill or injured and need to take time off work to recover.
Can self-employed get income protection?
Self-employed workers can get income protection as easily as employed workers in many cases. You simply choose the policy you like the look of and the insurer that suits you best.
The main difference for self-employed people is that you will need provide more evidence of your income, so insurers can work out how much cover you need. This will be in the form of bank statements or accountant reference. Income protection will normally pay out a percentage of your average monthly wage (around 60%).
There are 4 main types of income protection which allows you to choose the cover that works best for you:
- Short term income protection: pays out for 12-24 months depending on policy
- Long term income protection: pays out for years at a time, many policies will pay out up to retirement if needed
- Personal accident insurance: usually a cash lump sum (only covers accidental injuries)
- Guaranteed sick pay: only pays out for up to 6 months, usually the cheapest policy type
Key facts about these policies:
- Best for price: Guaranteed sick pay and personal accident insurance will normally be cheaper – but the level of cover will be more limited
- Best for comprehensive cover: Long term income protection will pay out for a longer time period, useful if you were to become very seriously ill
- Best for flexibility: All the policies above will usually have some flexibility in the amount of cover you can have, guaranteed sick pay tends to have the most restrictions attached
- Best for availability: Most insurers will sell short term income protection – which gives you a wider range of providers and policies to choose from.
More information:
- Income protection insurance explained
- Guide to income protection insurance for self employed
- Income protection for contractors
Note: There are advantages and disadvantages to any form of income protection. An insurance specialist will be able to provide further advice and information to help you decide on the right policy.
Best insurers for self-employed income protection
Income protection insurance is a widely available product, and most UK insurers will sell some form of income protection policy. There isn’t one ‘best’ insurer as each one has slightly different policies and one insurer might suit some people better than others.
UK self-employed income protection insurance providers:
- British Friendly
- Aviva
- Legal & General
- LV=
- Vitality
Do you need income protection insurance?
Income protection can be very useful for self-employed people to have. Self-employed workers won’t have access to benefits like workplace sick pay or Statutory Sick Pay. Without this extra support, you could struggle financially if unable to work due to illness or injury.
When considering buying income protection think about:
- Do you have sufficient savings to support you if needed?
- How much do pay in outgoing expenses each month?
- Do you have rent or mortgage payments that would need paying while off sick?
Note: There can be additional support available in the form of Employment and Support Allowance (ESA). There are some restrictions attached though, see the Gov.uk website for more details.
Other useful self-employed insurance policies
There are a range of other policies that can be beneficial for people who are self-employed.
Life insurance for self-employed workers
Life insurance is probably the most well-known type of insurance and provides your family or other beneficiaries will additional financial support. These policies pay out a cash lump sum in the event of your death which can be used to pay for expenses such as funeral costs or mortgage repayments.
A good thing about life insurance is there is usually a wide variety of different policies to choose from. You can choose the policy and level of cover that best suits your own needs and how much you can afford to pay.
Common types of life insurance include:
- Family life insurance (level term life insurance)
- Mortgage life insurance (decreasing life insurance)
- Increasing life insurance
- Over 50s life insurance
- Guaranteed life insurance
Self-employed business owners or company directors may want to consider business life insurance policies, keyperson insurance in particular. A keyperson or ‘keyman’ policy protects a business in the event someone key to the running of it was to pass away.
Critical illness cover for self-employed workers
Another policy that can be useful is critical illness cover. Critical illness cover and income protection often get confused as they have some similarities in how they work and what they are used for.
They are completely different policies though, the main similarity being that both pay out if you become seriously ill.
Critical illness cover:
- Pays out on diagnosis of a serious medical condition (must be a condition covered in your policy terms and conditions)
- Pays out a cash lump sum (income protection provides monthly payments to replace income)
- Will cover a set number of medical conditions and each insurer will have different specifications
There are pros and cons to critical illness cover and income protection insurance. If you aren’t sure which is right for you, you can speak to an insurance specialist for further advice.
More information – Critical illness cover vs income protection
Resources
Turn2Us – Self employment and benefits
