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Self-employed income protection

Self-employed income protection

Being self-employed can have many benefits including flexibility and tax breaks. But as your own boss, you don’t have access to traditional employee benefits. That’s why you might want to think about income protection.

Compare income protection insurance for self-employed people and find a deal to suit you.

Kamran Altaf
From the Life team
minute read
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Posted 21 JANUARY 2020

Why self-employed income protection matters

According to the Office for National Statistics, the number of self-employed people in the UK is now at a record high of 4.93 million. With so many people now working for themselves, it’s vital they’re protected if they become unable to work.

Why do self-employed people need income protection insurance?

While being self-employed can have many benefits, you don’t have the same employee rights as PAYE workers – and that includes sick pay.

If you find you can’t work for some reason – perhaps you’ve been injured or become ill – you may not be making money for some time. This means you may not be able to cover your mortgage, monthly bills and other outgoings. And if you employ people, the impact could be even more significant as you may have their salaries to cover.

That’s why many self-employed people arrange their own cover for scenarios where they’re unable to work because of accident or illness.

How much self-employed income protection cover do I need?

Government research has found that it’s difficult to measure income for self-employed workers. Some self-employed people have regular, consistent work and others work irregularly or on a project basis. But however you work, it’s probably accurate to say your income would be significantly impacted if you were injured or taken seriously ill.

To get an idea of how much income protection you need, make a list of outgoings that would continue if you were unable to work – household bills and rent, for example.

What does income protection for self-employed people generally cover?

Your policy could cover your rent, mortgage payments, outstanding debts and employees’ salaries. However, you’ll need to check your policy carefully to see what’s included.

When you compare quotes for income protection insurance, you may be able to choose whether you would receive a lump sum or regular monthly payments if you made a claim.

Will an income protection plan for self-employed people cover my full income?

Not usually. Income protection generally covers a percentage of your monthly income – around 50-60% – so you may need to rely on savings as well, if you have them.

There’s also usually a deferred period – the time between you becoming unable to work and receiving payments from your policy. A longer deferred period may make your premiums cheaper, but you’ll need to be able to cope financially while you’re waiting for your pay-out.

What’s the difference between long-term and short-term income protection insurance for self-employed people?

Long-term income protection provides cover if you become ill or injured. Depending on your level of cover, you could receive pay-outs until you’re able to start working again or until you retire, whichever is soonest.

Some self-employed people choose a short-term income protection (STIP) plan. These are generally cheaper as they last for a shorter amount of time, usually between six months and up to two years.

Does self-employed income protection include critical illness cover?

Critical illness cover is a separate type of insurance. It’s intended to cover you if you get a serious illness, such as cancer, and are unable to work as a result. It usually pays out a lump sum. However, it doesn’t tend to cover more common or everyday illnesses and injuries like a bad back.

What other insurance policies should self-employed people consider?

Life insurance could be a policy to consider, particularly if you have dependants.

Mortgage protection insurance could be an alternative to self-employed income protection - depending on how much you earn and what outgoings you’d need to cover, if you were unable to work for a period of time.

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