Can you get income protection if you are self-employed?

Yes, you can get income protection insurance if you're self-employed.

In fact, income protection is particularly important for those who are self-employed.

If you were unable to work for a period of time due to no fault of your own, could you afford to pay the bills?

Could you continue to support your family financially?

Unfortunately, the self-employed don’t have the financial security of employee sick pay.

Therefore, unless you have sufficient savings in place, income protection may be a sensible choice.

At Reassured, we don’t currently provide income protection, but we can help you arrange other types of insurance that self-employed people should consider.

Income protection in a nutshell

  • Provides a tax-free monthly income whilst you're unable to work due to an illness or injury
  • Pay out can be used to cover mortgage, bills and livings costs
  • Covers an agreed percentage of your pre-tax income
  • Choose from short-term and long-term pay out options
  • Claim more than once during the term of the policy
  • Available up to age 70

For example, critical illness cover (CIC) offers a tax-free cash lump sum pay out if you were unable to work due to a serious illness.

Critical illness cover can also be added to some life insurance policies, allowing you to make an early claim on your policy if you were to become seriously ill.

Get in touch with our award-winning, FCA registered broker service to find out what your options could be for critical illness cover.

Continue reading to learn more about income protection insurance for self-employed and how to find the best cover for you...

What is self-employed income protection?

Self-employed income protection is the same as income protection for someone who is employed.

An income protection policy pays out if you were unable to perform your job due to an illness or injury.

It provides you with a tax-free monthly income, either until you retire or until you’re well enough to return to work.

Allowing you to meet your financial commitments and maintain your standard of living.

Looking to provide your loved ones with a pay out if you pass away? Secure life insurance for self-employed from just 20p-a-day through Reassured.

Do you really need income protection insurance?

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, 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.

What is the best income protection for self-employed?

The best income protection insurance for self-employed depends on your individual circumstances, and your budget.

Nevertheless, if you’re self-employed, accident and sickness insurance (AS) policies may be the best to look out for.

Accident and sickness insurance pays out a tax-free monthly income if you’re unable to work due to a sickness or injury.

Some insurers also offer combined accident, sickness and unemployment insurance (ASU).

However, for someone who runs their own business, additional unemployment insurance may be unnecessary.

AS insurance tends to pay out on a short-term basis and can include other types of insurance, such as payment protection insurance (PPI) and mortgage payment protection insurance (MPPI).

Ultimately, it’s sensible to compare policies to find the one that best suits your needs.

At Reassured, we can compare quotes for critical illness cover, another essential form of protection that many self-employed people have in place.

How much does income protection pay out?

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.

In 2019, insurers paid out on average £15.8 million a day for protection policies, including income protection, critical illness and life insurance[1].

How long does income protection pay out for?

Income protection for self-employed pays out until the sooner of the following occurs:

  • You return to work
  • You retire
  • You pass away
  • The end of the policy term

You can decide if the policy pays out over a short or long-term period.

Short term policies pay out over a maximum of 1 or 2 years, and long-term policies pay-out until you retire or pass away (or until the end of the policy).

When does it pay out?

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.

How much is self-employed income protection insurance?

The cost of your self-employed income protection will depend on your individual circumstances and the type of policy you choose.

Insurers will take into account the following factors to assess the level of risk and calculate your monthly payment:

  • Age
  • Occupation
  • Health
  • Lifestyle
  • Smoking status
  • Policy type
  • Waiting period
  • Term length
  • Income covered

You’ll find that short-term policies tend to be cheaper than long-term policies, as they’ll only pay-out for up to 1 or 2 years.

Also, cheaper policies have a longer waiting period (up to 12 months following a successful claim).

Like with any type of insurance, it’s important to compare quotes with a variety of insurers to find the best quote.

You can do this by using an FCA registered insurance broker, or on a comparison site.

At Reassured, we can compare quotes for critical illness cover on your behalf, free of charge.

Why not get in touch with our award-winning team to explore all your options?

Once you have all the information you need, you can make an assessment on which is the best route to take.

What illnesses are covered?

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.

There are definitions of incapacity, which insurers refer to as the following:

  • Own occupation
    Pays out if you’re unable to work in your current role due to illness or injury
  • Suited occupation
    Pays out only if you’re unable to work in your current role and unable fulfil any other role in the business
  • Any occupation / Work tasks
    Pays out only if you’re unable to carry out simple tasks such as walking, bending, lifting or climbing

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

Are there any exclusions?

Like with other insurance products, exclusions are likely to apply with your policy.

Typical exclusions include illnesses or injuries caused by:

Have you considered family income benefit (FIB)?

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.

Other types of insurance for self-employed

There are other types of self-employed income protection available that can cover different aspects of your life.

Some of these include:

  • Critical illness cover
    Provides a tax-free cash lump sum if you’re diagnosed with a serious, but non-terminal, illness. Covers a wide range of serious illnesses, including some cancers, heart attack and stroke. Take out as a standalone policy, or as part of your life insurance policy
  • Payment protection insurance
    Provides short-term cover to help you with the repayments for a single debt, if you’re unable to work due to sickness, injury or if you lose your job involuntarily
  • Mortgage payment protection insurance
    Provides short-term cover to help you with the repayments of a mortgage, if you’re unable to work due to sickness, injury or if you lose your job involuntarily
  • Life insurance
    Provides a cash lump sum pay-out to loved ones if you pass away during the term of the policy. The pay-out can be used to pay for your funeral and cover outstanding debts
  • Terminal illness cover
    No to be confused with critical illness cover, terminal illness cover allows you to make an early claim on your life insurance policy if you were diagnosed with a terminal illness and predicted to pass away within 12 months. Terminal illness cover tends to be included as standard with most life insurance policies, and unlike critical illness cover, cannot be taken out as a standalone policy.

At Reassured we can compare quotes on your behalf, for critical illness cover and/or life insurance (with terminal illness cover included).

Our award-winning service can help you arrange fully comprehensive protection for your loved one's today.

Self-employed income protection coronavirus

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.

Self-employed income protection; in summary

The benefits of income protection for those who are self-employed could be significant.

Especially if you’re the sole earner for your household, and you have dependants that rely on your income to pay the bills, and the mortgage or rent.

More than 60% of working families in the UK, would see their income fall by more than one third if the main earner had to stop working due to illness.

Even if you don’t have dependants, income protection will allow you to meet your regular financial commitments and continue your standard of living whilst you’re unable to work.

As mentioned, it’s important to compare multiple quotes for income protection, to help you find the best deal.

You can take advantage of comparison sites or insurance brokers to do this for you, saving time and money.

Compare CIC and life insurance quotes

As discussed, those who are self-employed should consider other forms of insurance to protect their home and family from such unforeseen circumstances.

At Reassured, we can help compare quotes for critical illness cover and life insurance, either as single or combined policies, starting from just 20p-a-day.

We're an award-winning, FCA registered broker service that is completely free for you to use.

So, get in touch today to explore your options, you’ve got nothing to lose.



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