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Guide to income protection insurance for self employed

Could income protection be the perfect way to protect your family as a self employed worker?

A photo of Daniel Sharpe-Szunko, the author

By Daniel Sharpe-Szunko

Published on: 14 February 2022

6 min read

Guide to income protection insurance for self employed 

There are many benefits to being self employed or to being a contract worker, mainly the fact that you’re in control and you are your own boss. 

Unfortunately, one of the biggest draw backs is that you will lose any of the normal employee benefits, such as sick pay. Financially you will be exposed to very different risks that you should think about if you are self employed. 

In this section we’ll explain how income protection and self employed works and what it can do for you and your family. 

One of the common myths is that you can’t have income protection insurance if you’re self employed which isn’t generally true. 

Self employed stats UK 

Here are some of the key statistics for self employed workers in the UK provided Statista.com for 2022. 

  • 4.2 million self employed workers in the UK (November 2022) 
  • Self employed figures dropped to 3.2 million during the pandemic 
  • 2.76 million males 
  • 1.5 million females 
  • Self employed people contribute £303 billion to the UK economy 
  • Sole proprietorships 3.1 million (56%) 

What is income protection insurance? 

This type of cover is an insurance policy that provides a lump sum monthly payment to replace some of your regular monthly income if you can’t work due to being ill or injured. You will be able to receive payments until you return to work or your claim period runs out.

Income protection insurance will help to support your household financially during periods of absence from work. You can use your monthly benefit amount to pay for normal household bills and expenses, such as: 

  • Rent or mortgage payments 
  • Utilities 
  • Bills 
  • School fees 
  • Credit commitments 
  • Medical treatment 

Learn more in our ‘Income protection insurance explained’ guide.

Can I get self employed income protection insurance? 

The answer is usually yes that you can get income protection insurance (and other policies like life insurance and critical illness cover) if you are self employed, either as a sole trader, contractor or any other type of self employment. 

It is understandable to be unsure whether you can get income protection insurance if you’re self employed. There is a common misconception that you need to be employed to be able to buy income protection insurance. 

In fact, income protection insurance is actually more important and more relevant to people that are self employed. You’ll generally have little or no support from the government if you can’t work due to sickness and most have insufficient savings. 

Do self employed workers need income protection insurance? 

Often, income protection insurance is more important and more relevant for people who are self employed. This is mainly because of the fact that you won’t have the traditional benefits and security that comes with employed jobs. 

Some of the main things to think about: 

  • Do you have any savings in place? 
  • How long could you cope without an income? 
  • What are your monthly outgoings? 
  • Would your business be affected if you weren’t able to work? 
  • Can you provide proof of income? 

If you’re unable to work then you might be able to claim some benefits from the government on the Employment and Support Allowance scheme. This is specifically designed to support an element of self employed people for certain types of long term sickness. 

Employment and Support Allowance Scheme: 

  • Adults over 25 years 
  • Maximum benefit of £117.60 per week (depending on circumstances) 

If you’re still not sure if you need this type of cover, you can find out more in our ‘Do I need income protection insurance?’ guide.

How much is income protection for self employed workers? 

The main positive about income protection insurance is that it is very flexible with varying levels of cover and often can be adjusted to suit most budgets. There are 4 main types of cover and the cost will vary depending on which you choose. They are:

It is however, very difficult to say how much your monthly premiums would be because of the amount of different factors to consider. When you apply for income protection, you’ll be asked to provide basic information such as: 

  • Your age 
  • Height and weight 
  • Smoker status 
  • Health 
  • Lifestyle 
  • Occupation 

This gives the insurers the information that they need to assess the levels of risk that are involved with your cover. 

Your premiums will then be based on: 

  • Type of income protection (e.g. short term or long term) 
  • Monthly benefit (£’s) 
  • Term of policy (years) 
  • Deferred period (e.g. 1, 2, 3, 6, or 12 months) 

Premiums will vary considerably depending on the details that you provide and also, different insurers offer different premiums. 

You can also reduce the cost of your cover by extending the time between claiming and receiving your first monthly payment. This is known as your policy ‘deferred period’. Learn more about this in our ‘Income protection insurance deferred periods explained’ guide.

Best income protection insurance for self employed 

Most income protection policies will cover you if you’re self employed and will give you financial support if you can’t work because of illness or injury. This is especially useful for self employed workers who will not be eligible for certain types of support such as Statutory Sick Pay (SSP).

The best type of cover for you will vary depending on your needs and your circumstances, so there are just a few things to consider. Some insurers also provide specific benefits and services for people that are self employed. 

Some insurers that are best for self employed income protection: 

  • British Friendly 
  • Aviva 
  • Legal & General 
  • LV= 
  • Vitality 

How much income protection insurance can I get if I’m self employed? 

This is a very good question and it’s definitely true to say that it is more difficult to calculate your income if you are self employed. 

Generally, you will be able to apply for up to 60% of your ‘regular income’ if you are self employed. This will usually be the income that you provide on your tax returns or through your accounts. 

Regular income includes: 

  • Salary (PAYE) 
  • Dividends 
  • Bonus payments 
  • Fixed costs 

Your income should be declared on your annual return either via your accountant or by yourself, if you do your own. You can’t claim for business running costs as your income as these are not strictly your earnings. 

Advantages of self employed income protection insurance 

There are some very clear examples of key advantages to having income protection if you’re self employed, including: 

  • Provides cost effective financial support if you’re unable to work 
  • Peace of mind that you and your family is financially protected 
  • Tax free monthly benefits to pay your bills 
  • No financial stress and worry if you can’t work 
  • Time to recover properly if you’re unable to work due to illness or injury 
  • Flexible cover options to suit most self employed needs and budgets 
  • Most illnesses and injuries will be covered 

There are also some very important disadvantages to income protection for self employed workers to consider, such as: 

  • Can be expensive (especially for older people or people with medical problems) 
  • Cover might not be available depending on your health or your job 
  • Premiums are not always affordable 
  • Cannot be claimed as a business expense (not tax deductible) 
  • May come with exclusions depending on your job or your health 
  • Providing proof of income can be difficult 

The quickest and often the cheapest way to get income protection insurance is to speak to an insurance specialist. 

There are several other options for buying income protection insurance for people that are self employed. You should be able to get a quote online through some price comparison websites, but those aren’t always the cheapest or best options. 

You can also apply direct to one of the common high street insurers, but that can sometimes be limiting as it’s only one insurance provider.

Read more of our MPO guides.

Resources

Turn2Us – Self employment and benefits 

Gov.uk – Employment and Support Allowance (ESA)

Citizen’s Advice – Check if you can claim ESA

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