Income protection insurance for contractors

The thought of not being able to work due to long term sickness is a scary prospect for anyone, but especially those who don’t receive sick pay.

As a contractor, it’s unlikely that you’ll benefit from sick pay during periods of ill health, meaning you’ll need to rely on your own savings or government support like ESA (Employment and Support Allowance) to get by.

Securing an income protection policy can allow you to protect a percentage of your earnings to help you keep up with daily living costs and financial commitments.

Up to 70% of your income could be paid out in monthly, tax-free, payments while you’re unable to work due to illness or injury.

Why not compare income protection quotes through Reassured?

Using their whole of market comparison service you can find the best policy to meet your needs at the right price for your budget.

Quotes are fee-free, personalised and without obligation. But the best part is that quotes start from just 20p-a-day ‡ . Simply get in touch today.

Keep reading this in-depth income protection for contractors guide as we cover:

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Can contractors get income protection?

Yes, contractors are able to secure income protection to protect their earnings against sickness and injury.

As contracting can cover a wide range of industries (IT, engineering, project management, design, construction etc), you’ll be asked questions about your occupation during the application process so insurers can find out more about your line of work.

While being a contractor won’t affect your ability to secure cover, it could affect the price you pay depending on what industry you work in.

For example, an IT contractor is likely to pay less than a contractor who works in construction. A construction worker could be seen as a greater risk due to the hazards of being on site.

It’s still possible to secure affordable cover whatever your line of work.

Reassured can find you the best quotes for contractors from leading UK insurers and smaller specialists.

What is income protection for contractors?

Income protection for contractors is simply an income protection policy taken out by a contractor to protect their earnings.

There’s no specific income protection policy for contractors.

How does income protection work for contractors?

Income protection for contractors will work no differently to a standard income protection policy.

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You’ll secure a policy with the right terms and conditions to meet your needs. Your policy could protect up to 70% of your usual earnings (depending on the insurer).
Inhertiance

Once cover is in place, you’ll need to keep up to date with premium payments to keep your cover valid.
Paperwork Application

Unlike other forms of cover, there isn’t a specified list of conditions you can claim for. Therefore, should you develop an illness or injury that prevents you from working, you can make a claim as per the terms and conditions of your policy.
Income Protection

If you’re off work for longer than your deferred period, the policy will start to pay out to you in monthly, tax-free, payments. This could be on a short-term or long-term basis (depending on what you opted for during the application).
Peace Of Mind

You’ll receive payments until you return to work, the payment period comes to an end, your policy expires or you retire (whichever happens first).

Do contractors need income protection?

Income protection can be beneficial for anyone with financial commitments, but particularly those who don’t benefit from employer sick pay.

While the government offers ESA, how much you’re eligible for is affected by factors such as what stage your assessment is at, your age and whether you’ll be able to go back to work.

The standard ‘assessment rate’ (paid for 13 weeks) is up to £67.20 per week if you’re under 25 or up to £84.80 per week if you’re aged 25 or over.

You’ll be then placed into either the work-related activity group (if you’re able to get back into work) which could pay out up to £84.80 per week, or the support group (if you’re unable to return to work) which could pay out up to £129.50 per week[1].

Would this be enough to help you cover your living costs?

While personal savings could help to keep you afloat it would be a shame to dip into these funds if you had intended them for something else.

By taking out a personal income protection policy, you could protect up to 70% of your usual earnings (depending on the insurer) to help you cover essential costs like:

  • Monthly rent or mortgage payments
  • Household bills and utilities
  • Daily essentials (food shops, travel expenses etc)
  • Monthly debt or loan payments (credit cards, car finance plans or personal loans)
  • Leisure costs

The experts at Reassured can provide you with all the information you need and give recommendations on what’s right for you.

Why not use our handy income protection insurance calculator below to work out how much cover you may need to help protect your essential costs?

How much income protection do you need?

Enter your monthly financial commitments to understand the level of income protection you might need as a contractor.

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£723 a month is the average monthly mortgage payment in the UK, with the average monthly rental price coming in at £700.

The majority of our monthly income will go towards rental or mortgage payments.

For this reason, it’s essential to have precautions in place to ensure you could keep up to date with your payments if you weren’t receiving your usual income.

Monthly income protection payments can help to cover this large expense and ensure you can stay in your home.
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According to the Money Advice Service, the average household spends £340 a month on household bills.

This includes electricity, gas, TV and broadband.
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Childcare costs are on the rise with it now costing £137.69 per week for part-time nursery for a child under the age of two.

That’s over £550 per month - is this an amount you’d be able to keep up with if you were unable to work?

Becoming ill could also result in the need for additional childcare while you attend doctors’ appointments or medical treatment.
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The average household in the UK spends around £97 a week on their food shop, totaling £388 a month.

While this may seem like a small amount in comparison to some of the other expenses mentioned, the food shop is often where we try to scrimp and save when we fall on hard times.

Income protection can take care of the cost of your weekly food shop, as well as many other essential costs.
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At the beginning of 2020, credit card debt in the UK was at £2.1 billion, with almost 27 million UK residents in some kind of debt.

Becoming unable to work could make it hard to keep up with credit card or loan payments (including car finance or other financed goods).

Failure to keep up with payments could result in additional interest being incurred or late fees issues - resulting in a higher total needing to be paid.
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The average spent on public transport each month comes to an average of £94.

This includes the cost of public transport, as well as petrol and diesel vehicles.

While this amount may reduce while you’re unable to work as you won’t need to commute there may be additional spending on public transportation if your illness or injury leaves you unable to drive.
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Your total cover estimate

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What is the best income protection for contractors?

The best income protection insurance for contractors will depend on your personal circumstances and available budget.

Income protection comes with flexible terms and conditions which can be chosen to best meet your needs.

When securing cover, it’s important to be aware of these key policy features:

Insurance TermDescription
Benefit amountThe amount that will be paid out to you on a monthly basis. Typically this is up to 70% of your usual earnings before tax. It can also be referred to as your ‘monthly benefit’ or ‘cover amount’.
Definition of incapacityWhen you’ll be able to make a claim. Most policies come with an ‘own occupation’ definition, which allows you to claim if you’re unable to do your own job. But, it’s also possible to secure ‘suited occupation’ and ‘any occupation’ definitions.
Policy termHow long your cover will last for. The policy term is a set period decided upon during the application. You have the freedom to choose a term which meets your needs but, often it must end by your 70th birthday.
Deferred periodA set period that must pass before your payments will commence. You’ll decide on a deferred period during the application process. Typical options include 4, 8, 16, 26 and 52 weeks.
Payment periodHow long you’ll receive payments for. This could be on a short term basis up to a maximum of 1, 2 or 5 years or a long term basis until the policy comes to an end (full-term).
Premium typeHow you’ll pay for your cover. Most premiums are guaranteed, meaning they won’t change over time. However, it’s also possible to secure cover with reviewable (change over time due to certain criteria) or age-based (change each year with age) premiums.


Talking your options through with an expert can help you find the best policy to meet your needs for the most affordable price.

For example, if you’re self-employed, opting for a shorter deferred period could allow you to start receiving payments quickly - reducing the amount of time you would need to rely on your own funds.

You could also opt for a long-term payment period to ensure you’re covered for the rest of your working life. If your incapacity meant you were unable to return to work, you could receive payments up until retirement age.

Not only can the team at Reassured compare quotes from the whole of the market, but they can also recommend what’s best for you based on your personal circumstances.

Get in touch for your free quotes today.

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How much does income protection cost for contractors?

The price you pay for income protection as a contractor will depend on a variety of factors.

Key information required to calculate your premium includes:

Information about your policy will also impact the price you pay, including:

  • Benefit amount
  • Policy term
  • Payment period
  • Deferred period
  • Definition of incapacity
  • Premium type

Your field of work could impact the price you pay depending on the level of risk involved in your job.

You’ll be asked questions about your job so insurers can understand the level of risk. For example, a contractor working in construction could pay more due to working at height or around dangerous machinery.

Comparing quotes is essential in finding the most affordable price for your personal circumstances.

The table below shows example quotes for a self-employed electrical contractor, who is a non-smoker in good health, with an annual income of £40,000. Cover is until age 65 with a 3 month deferred period and a 12 month payment period:

AgePrice per month
20£8.86
25£10.00
30£10.22
35£11.81
40£13.16
45£16.52
50£19.97


Contact Reassured to compare income protection quotes from the whole of the market.

Find your best quotes and receive personalised recommendations on what’s right for your needs.

Income protection for self-employed contractors

The vast majority of contractors are self-employed, meaning it’s particularly important to have the right cover in place to protect your self-employed earnings.

For self-employed contractors, having to take time off due to illness or injury could result in a devastating loss of income - particularly if your incapacity meant you were unable to work for a prolonged period.

Many may even consider returning to work before a full recovery has been made to avoid the loss of any more earnings.

Recent research from Scottish Widows shows that 24% of self-employed workers only have enough money to cover costs for three months if they were unable to work[2].

Income protection can be a huge benefit to self-employed contractors as the monthly payments can help you to keep up with essential financial commitments - allowing you to take the time off that you need.

If you’re self-employed and have your business set up as a limited company, you also have the option of an executive income protection policy.

This is a policy that will be set up and paid for by your business, allowing you to cover the income of an employee (this could be any employee, including yourself).

Executive income protection key points:

  • Available to self-employed contractors with a limited company
  • Any employee in the business could be covered (included company directors)
  • Up to 80% of the insured person’s income could be protected
  • Premiums are paid for by your limited company (making them tax deductible)
  • Can help the insured person to keep up with daily living costs while off work
  • Available through Reassured

Reassured can help you compare executive income protection quotes from a panel of leading UK insurers.

Simply get in touch for your personalised, fee-free and no-obligation quotes.

Why not read our complete executive income protection guide for more information? »

Is income protection an allowable business expense?

Typically, no. If you take out a personal income protection policy, this can’t be classed as a business expense.

This is because the policy is taken out in your name and the premiums are paid for out of your own pocket.

However, if you have a limited company and take out an executive income protection policy, this could be classed as a business expense.

An executive income protection policy is set up and paid for on behalf of your business - therefore the premiums could be considered a business expense (therefore making them tax deductible).

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Does income protection insurance pay out for contractors?

Yes, once cover is in place, your occupation won’t impact whether your policy will pay out to you.

Your illness/injury simply must meet the definition of incapacity listed within your policy and you must be incapacitated for longer than your deferred period for your policy to pay out.

The only time an income protection policy won’t pay out is if:

  • Your illness/injury doesn’t match the definition of incapacity listed in your policy
  • You return to work before your deferred period has come to an end
  • You fail to provide necessary medical evidence
  • You claim for a condition that’s excluded from your cover (such as a pre-existing condition)

To understand what income protection covers it’s always important to read your policy terms and conditions »

Other protection policies for contractors

Life insurance

Life insurance provides your loved ones with a lump sum pay out if you pass away during the policy term.

  • Term-based and whole of life options available
  • Sum assured (cover amount) up to £1,000,000
  • Lump sum pay out can help to protect your family and their home
  • Pay out could also be used to help cover the cost of your funeral (a basic funeral in the UK currently costs £3,953[3])
  • Can be taken out with income protection for a comprehensive cover solution
  • Life insurance starts from 20p-a-day through Reassured †

Critical illness cover

Critical illness cover can be added to life insurance for an additional cost. It allows you to receive an early pay out if you’re diagnosed with a specific serious illness.

  • Can be added to term-based life cover
  • Lump sum pay out can help to replace lost earnings and/or pay for private medical care
  • Typically 30 illnesses covered (including cancer, stroke and heart attack) but this can vary between providers
  • If you make a claim for a critical illness, your cover will expire (including life insurance)
  • Life insurance with critical illness cover starts from 33p-a-day through Reassured º

We have a life insurance for contractors guide if you would like more information on this form of cover »

Compare income protection for contractors

Comparing quotes is the best way to find the right policy to meet your needs.

Reassured can help you compare both personal income protection plans and executive income protection (for those with limited companies).

Simply get in touch to be provided with multiple quotes from leading UK insurers, as well as personalised recommendations on what’s best for you.

A friendly member of the team will also be on hand to guide you through the application, answer any questions you may have and decode any industry jargon.

Quotes through Reassured are fee-free and completely without obligation, so why not start your journey today?

Compare Income Protection Quotes for Contractors »

Sources:

[1] https://www.gov.uk/employment-support-allowance/what-youll-get

[2] https://ifamagazine.com/self-employed-people-risk-financial-hardship-as-over-half-rely-on-personal-savings-when-out-of-the-office-scottish-widows-research-reveals/

[3] https://www.sunlife.co.uk/funeral-costs/

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