If you were to become ill or injured and unable to work, do you know how you would continue to pay your essential outgoings and maintain your standard of living? It's not something nice to think about, but without an employer or sick pay to fall back on, it's especially important that self employed people do consider the options. There are various protection insurance products available and it can be confusing, talk to one of our experts to make sense of it all.


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What Is Self Employed Income Protection Insurance?

Income Protection Insurance protects your income in the event you are unable to work due to an accident, illness or disability. It provides a percentage of your gross monthly earnings - up to 70% - as a tax-free monthly payment. Income Protecion is a really helpful safety net for those who are self employed. 

According to the UK’s consumer champion Which? Income Protection is ‘the one protection product every working UK adult should consider buying’. It can be used to pay all your essential outgoings which your income would normally cover, such as your mortgage or rent, your utility bills and day to day living costs such as food. It can also be known as Sick Pay Insurance or Accident & Sickness Insurance.

Why Is Self-Employed Income Protection Important?

According to the Office of National Statistics: “The number of self-employed increased from 3.3 million people (12.0% of the labour force) in 2001 to 4.8 million (15.1% of the labour force) in 2017. With such a rapid increase in those working for themselves, it is important to understand that sole traders do not have the same employee rights as PAYE workers, namely they do not receive sick pay. It is therefore vital that they have a protection plan in place if they are unable to work.

How Do I Know How Much Self-Employed Income Protection Cover I need?

As a freelancer or sole trader your income can be much more inconsistent than those in full-time employment, so it can be more difficult to calculate how much cover you require. It can be helpful to discuss your own individual circumstances with an expert adviser, as there are various factors to consider. You could work out your annual earnings and divide them by 12 to get an idea of your average monthly earnings. However, you wouldn’t need as much cover as you usually earn. Around 50-70% of your gross earnings is a usual amount to protect. The income benefit payments are tax free and it’s likely your spending would reduce if you were unwell or injured anyway.

Work out how much your essential outgoings would be. This would normally be any mortgage or rent costs, your essential bills and if you employ someone else, their wages. Consider how much you have in savings as well and how much this could last for.

What Types of Self-Employed Income Protection Cover Are There?

Income Protection policies can vary from a short-term policy, which could cover your income with a benefit pay out for a specific term – for example 6 months or a year. Alternatively, you can purchase a completely comprehensive policy which would cover you for as long as you need until you are fit to return to work, or until when you retire, whichever comes first.

Another thing to consider when purchasing a policy is the waiting time or deferral period from the point you become ill, until the time you can make a claim and start to receive the income benefit. The longer the deferral period, the cheaper your monthly premiums will be, but this needs to coincide with your own individual circumstances surrounding savings.

Do I Really Need Self-Employed Income Protection Cover?

It’s very easy to put off making decisions about protection insurance, as there is always the feeling that it’s not something that will happen to you. Or it just slides to the bottom of the list of things to do at some stage. Here are some statistics though that show why it’s important to consider protecting yourself now.

  • ‘Each year one million workers suddenly find themselves unable to work due to serious illness or injury’ (Welfare Reform for the 21st Century)
  • Yet according to the Department for Work and Pensions Family Resources Survey, around 54% of households have either no savings or less than £1,500 savings and 76% have less than £10,000


How Much Does Self-Employed Income Protection Insurance Cost?

It is difficult to give a definitive answer to this question, as there are a number of variables which affect premiums. It is always a good idea to get a tailored quote from one of our expert advisers, based on your individual requirements and circumstances.

However we have put together some example quotes:

Some indicative example quotes:

Example 1

  • 25 year old Architect
  • looking for a £1500 per month pay out amount
  • with a three month waiting period
  • full policy (meaning it will pay out until you return to work/retire)
  • £18.89 per month premium

Example 2

  • 45 year old Architect
  • looking for a £1500 per month pay out
  • with a three month waiting period
  • full policy (meaning it will pay out until you return to work/retire)
  • £40.07 per month premium


What Does Self-Employed Income Protection Not Cover?

Income Protection doesn’t have a set list of conditions covered as you would with a Critical Illness Insurance policy. If you are too ill or injured to do your job, then you should be eligible to make a claim. However, as with all insurance policies, there will be some exclusions which apply to anyone. These are likely to include injuries or illnesses caused:

  • As a result of travel to areas where travel is advised against by the Foreign and Commonwealth Office because of conflict, high terrorism risk etc
  • As a result of criminal activities
  • As a result of substance or alcohol misuse

Previous Illnesses

If you have suffered from a medical condition previously, this could also be excluded from your self-employed income protection policy. Each insurer has their own individual stance on how they will handle your circumstances, but if you have an existing condition, you can expect this to be reflected in the policy. This could be that you have to pay an additional premium to cover the condition, alternatively the condition could be excluded completely, or some insurers may be happy to cover the condition completely, with no additional charge. It depends upon each insurer’s appetite for risk as well as your individual circumstances. It is especially important to seek professional advice in this instance to make sure you have the best value and the most complete cover.


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