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 perks like sick pay. That’s why you might want to think about self-employed income protection.
Read our guide to income protection insurance for self-employed people and consider your options.
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 perks like sick pay. That’s why you might want to think about self-employed income protection.
Read our guide to income protection insurance for self-employed people and consider your options.
60-second summaryWant the quick facts about self-employed income protection? Read on:
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What is self-employed income protection?
Self-employed income protection insurance can help you recoup some of your lost earnings if you’re unable to work due to illness or injury.
With this type of cover, you can get regular payments of a proportion of your average income. This is typically 50-65%, though it varies between insurance providers.
You can choose between short-term and long-term income protection.
- With a short-term policy, your cover will last for a set amount of time. If your claim is successful, you’ll receive payments until you can either return to work or the policy ends, whichever is sooner.
- With long-term income protection, you’ll continue to receive pay-outs until you’re able to return to work or you reach retirement age.
Do I need self-employed income protection?
Income protection insurance isn’t mandatory if you’re self-employed. But it could be extremely useful.
To decide whether you need self-employed income protection, think about what would happen if you couldn’t work for an extended period because of illness or injury. Would you have enough savings or other resources to tide you and your family over until you could work again?
If the answer is no, self-employed income protection could be worth considering.
Why self-employed income protection matters
According to government figures, as of October 2024, there were almost 4.4 million self-employed people in the UK. That’s just over 13% of the UK workforce, contributing around £331 billion to the economy.
With so many people now working for themselves, it’s important they’re protected if they become unable to work.
How does self-employed income protection work?
Self-employed income protection provides a regular monthly payment if you can’t work because of an illness or injury. This could include stress-related illnesses, mental health conditions or physical ailments.
However, different insurance providers will have different exclusions. For example, not all providers will cover pre-existing medical conditions, specific illnesses or injuries resulting from illegal activities. So it’s worth checking any exclusions before you take out a policy.
Income protection payments can be made either for a fixed amount of time, until you’re well enough to return to work, or until you retire, depending on the policy you have.
It’s worth noting that payments aren’t made immediately after your claim is accepted. There’s a waiting or ‘deferred’ period before you get your first pay-out.
Does sick pay for self-employed workers exist?
Unfortunately, there’s no statutory sick pay for the self-employed.
But as a self-employed worker, you may be able to claim the New Style Employment and Support Allowance (ESA) to help with living costs if you have health issues that prevent you from being able to work.
To be eligible for the New Style ESA, you need to:
- Be under state pension age
- Have worked as an employee or been self-employed
- Have paid enough National Insurance contributions – usually within the last two to three years.
Adults who qualify could receive a maximum of £138.20 a week, depending on their circumstances.
You can’t claim the New Style ESA if you’re already claiming Job Seeker’s Allowance (JSA) or Statutory Sick Pay. You can, however, claim Universal Credit alongside the New Style ESA.
What does self-employed income protection generally cover?
Your policy could cover essential household bills, such as your rent, mortgage payments, utilities and food shopping. It can also help you keep on top of outstanding debts. Think carefully about what you’ll need to cover before you take out a policy.
When comparing quotes for self-employed income protection, consider:
- Policy length – short-term cover protects you for a set amount of time. Long-term cover pays out until you’re either able to work again or ready to retire.
- Length of deferred period – this is how long you have to wait after you claim before you receive your first payment.
What won’t self-employed income protection cover?
Self-employed income protection won’t cover:
- Your entire income – it will only cover a proportion of it
- Business costs – it won’t cover your office expenses, for example
- Any illnesses or injuries caused by drug use, alcohol abuse or criminal activity.
How much self-employed income protection cover do I need?
The amount of cover you need will be based on your income. But, since self-employed work patterns can be irregular, it can be difficult to measure your salary.
To work out your average income, most insurance providers will look at your pre-tax profits, usually over the course of the past financial year. If you were to fall ill and make a claim, the monthly pay-out you receive would be an agreed percentage of that calculated average monthly income.
How much does self-employed income protection insurance cost?
The amount you’ll pay for your insurance will depend on several factors, including the type of policy you choose and your personal circumstances. Insurance providers will consider:
- What you do for a living and the risks involved in your job. For example, if you’re a contractor working on building sites, an insurance provider will likely calculate that you’re a much higher risk than a self-employed graphic designer working from home.
- Your age. The assumption being that the older you are, the more likely you are to fall ill or suffer an injury.
- If you have any existing medical conditions that may make you more likely to claim.
- The level of cover you need, in terms of your average monthly income.
- How long you want your policy to last. You’ll pay less for short-term cover.
- How long your deferred period is. Generally, the longer you can wait, the less you’ll pay in premiums.
Is income protection taxable?
Not usually. Payments received from policies to cover sickness, disability or unemployment will generally be tax-free.
What else should I consider when comparing income protection insurance for self-employed people?
With self-employed income protection cover, your insurance provider will want to assess your ability to work if you make a claim. They’ll base their decision on their definition of being ‘fit to work’, which is detailed in your policy.
The terms of your income protection cover and how you’re assessed will vary between insurance providers. So, check the details of any policy carefully before you buy.
Some policies, for example, won’t pay out if you’re able to return to work in a different role than the one stated on your claim.
It’s also worth bearing in mind that income protection cover is only intended to cover lost income due to sickness or injury. You won’t be able to claim for loss of income caused by losing a client or a project, for example.
You should also consider that there’s no cash-in value for self-employed income protection insurance. If you don’t use it, you won’t get any payout.
What other insurance policies should self-employed people consider?
Life insurance for self-employed people could be worth considering, particularly if you have dependants. There are policies tailored specifically for self-employment.
If you’re a homeowner, mortgage protection insurance can be an alternative to self-employed income protection. Whether it’s a good option will depend on how much you earn and what outgoings you’d need to cover if you were unable to work.
Frequently asked questions
What is a deferred period?
A deferred period is how long you’ll have to wait to get your first payment after making a successful claim if you’re injured or ill. This could be anything from a week to two years.
When deciding about self-employment income protection policies, you should think carefully about how long you can afford to wait before receiving a payment.
Will a self-employed income protection plan cover my full income?
No. Income protection covers a percentage of your monthly income – typically around 50%-65%. This means you may need to rely on savings as well, if you have them, or cut back on spending until you’re back working.
Will income protection insurance cover lost income due to short-term sickness?
Generally speaking, you’re unlikely to be able to claim if you’re sick for less than a month. Most insurance providers will set a minimum length of time that you’ll have to be out of work due to sickness or injury before you can claim.
Every policy is different, however, so check with your insurance provider.
Does self-employed income protection include critical illness cover?
No. Critical illness cover is a separate type of insurance. It’s intended to cover you if you get a serious illness, like cancer, and are unable to work as a result. It usually pays out a lump sum.
Critical illness only pays out for specific illnesses named in the policy. It’s often combined with or added to a life insurance policy.
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