Income protection
for self-employed

It’s reported that 250,000 people each year leave employment due to illness, and one million workers suddenly find themselves unable to work due to serious illness or injury^[1].

Whilst employed workers have the convenience of Statuary Sick Pay (SSP) to see them through, which is £95.85 a week for up to 28 weeks, self-employed workers would have to rely on state welfare.

Around 80,000 self-employed workers claim Employment and Support Allowance (ESA) through the government every year.

ESA provides you with a weekly allowance, which is calculated based on your age and other factors, whilst you’re unable to work.

The maximum amount you can claim over the age of 25 is £113.55 a week^[2], for a long-term health condition or disability.

If you’re able to return to work, this amount could be just £74.35 a week.

Is this adequate to pay your bills, mortgage/rent and lifestyle costs?

If not, then you’ll need some form of income protection to help keep you financially afloat until you’re able to return to work.

For extra peace of mind, you could also have critical illness cover in place to benefit from the cash lump sum pay out.

This can be used in other ways, for example, making adaptions to your home in order to make it more comfortable whilst you recover.

Income protection for self-employed usually pays out from 50% to 70% of your gross (pre-tax) earnings.

For example, if you earn a salary of £40,000 and take out an income protection policy that covers 60% of your earnings, then you’d receive a tax-free monthly pay out equal to £24,000 for the year.

If you choose to be covered for a lower percentage of your earnings, then this could reduce the cost of your premiums.

Some insurers may offer more than 70%, but the total amount may be capped to a maximum monetary amount.

Income protection for self-employed pays out following a deferred period of between 4 weeks and 12 months.

Like with other insurance policies, income protection has a waiting period or deferral period.

This is a pre-agreed period of time following a successful claim, where no payments are made.

You may be able to get by on savings or other insurance until the payments start.

Choosing to have a long waiting period could reduce the cost of your monthly premium.

On the other hand, critical illness cover pays out a cash lump sum if you survive, usually more than 14 days, following a serious illness diagnosis.

You can make use of the funds to settle your financial affairs straight away.

Income protection should cover all illnesses and injuries that prevent you from carrying out your day to day job.

Although, you won’t be able to make a claim on a pre-existing medical condition if this has been excluded from the policy.

You’ll need to declare if you have any pre-existing medical conditions during the application process.

Whilst most illnesses are covered, the risk level of your job may affect the type of cover you can secure and in what circumstances you can make a claim.

When taking out your policy, it’s important to check that you have the full amount of protection available.

Family income benefit is a form of term-based life insurance that pays out a monthly, tax-free income to loved ones if you pass away during the term of the policy.

This type of cover is ideal for those who are self-employed and have a young family to support.

It can provide you with some peace of mind that they would be financially secure if the worst were to happen.

Learn more about family income benefit and if this may be the product for you.

If you fall ill with the coronavirus and you’re unable to work for a period of time due to this, then you should be able to make a claim on your existing income protection policy.

If taking out a new income protection policy, then you should be covered for coronavirus (unless you have recently been diagnosed with the illness), depending on the insurer.

Self-employed workers can also apply for ESA through the government if they are unable to work due to coronavirus.

You may also be able to apply for ESA if you’re self-isolating, but income protection is unlikely to pay-out in this circumstance.