Self-employed income protection: the facts

What you need to know about income protection if you're self-employed or a contractor

When you’re self-employed or a contractor, you get the sweet perk of being your own boss, but you wave goodbye to traditional employee benefits like company sick pay.

Getting income protection is one step you could take to provide a financial safety net if you’re unable to work because of illness or injury.

What is income protection insurance?

Income protection insurance is a helping hand that gives you money each month if you’re ill or injured and can’t work. It’s meant to replace some of your lost earnings, helping you pay the bills and carry on living life as normally as possible. So, you’re able to focus on getting better and back to earning a living.

And it’s not just about the money. If you need to claim, you’ll also get support to help you get working again as quickly and effectively as possible.

Do you need income protection insurance if you’re self-employed?

When considering if income protection insurance is right for you, there are a few questions to ask yourself.

If you get ill or are injured and can’t work, will you still be able to look after yourself and your loved ones financially? If you stop receiving any income, is there anything else that could help you get by, like savings.

Think about how you would pay everyday bills such as your mortgage or rent, utilities, food, and other general living costs.

As well as continuing to support loved ones, you also may have to think about other things, like how to keep your business afloat.

How income protection insurance works when you’re self-employed

Income protection insurance gives you regular money each month if you can’t work because of illness or injury. Depending on the policy you choose, and if your claim’s successful, you’ll receive payments until you’re either fit to return to work, for a set amount of time, the end of the policy term, or you retire.

With most income protection insurance, you can make as many claims as you like while the policy lasts.

When you first take out the policy you can normally choose how much money you’ll receive if you need to make a claim, how long your policy lasts for and how long the deferred period is. However, depending on the specific income protection policy you decide on, there may be certain limits or restrictions to this.

Deferred periods explained

A deferred period is how long you need to wait until you get your first payment after making a successful claim. This can range from 4 to 104 weeks.

You’re normally able to choose how long this deferred period is when you first take out the policy. Though the specific income protection policy you choose may have some limits or restrictions.

When deciding how long your deferred period is, ask yourself how long you could wait for your first payout before money got tight.

How much income protection do you need when you’re self-employed?

When you’re self-employed, you may not earn the same consistent amount each month, as you do with a fixed salary.

So, when considering how much income protection you would need, look at what you spend each month. Write a list of essential expenses that would continue if you couldn’t work, such as mortgage or rent, utility bills, food, and childcare.

Remember, income protection isn’t designed to cover all your lost earnings or all your monthly outgoings, just some of them.

The costs of income protection

The amount you pay in premiums each month depends on your particular circumstances. Some things that can change the amount you pay, include:

  • Your job – The riskier your job, the higher your premium will be. For example, if you work on a building site, you’re more likely to have an accident while working than an office worker is.
  • Your age – The older you are when you take out a policy, the higher your premium will be because you’re more likely to suffer an injury or become ill.
  • Your health – If you have any pre-existing conditions, depending on how severe they are, this might cause increased premiums, or the condition could be excluded from your cover.
  • How much income protection benefit you’ll receive – the more you’ll receive the more you’ll have to pay each month in premiums.
  • How long your deferred period is – The longer your deferred period is, which means the longer you go before receiving your first payout, the lower your premium could be.
  • When you want your policy to end – you may want your policy to run until your planned retirement age or until a long-term financial commitment, like your mortgage, ends. The longer your policy lasts, the higher your premiums could be.

Things to be aware of 

Income protection insurance pays out if you’re unable to work because of illness or injury. But who decides if you’re able to work or not?

Every insurer or policy has a definition of what 'incapacity’ is. Those offering ‘own occupation’ will pay out if you can’t do the type of job you have at the point of making a claim. Own occupation is what all of our income protection policies give you. We won’t offer you anything less.

There are other definitions that give less cover, but they might come with extra conditions, such as having to return to work in a different but suitable role based on your skills, qualifications, and experience. Or they may only cover you if you’re unable to do certain daily activities, such as climb the stairs without help.

Remember, income protection insurance supports you financially if you’re unable to work because of injury or illness. It doesn’t pay out as a result of you being made unemployed.

Policies have no cash-in value, and if you stop paying your premiums, your cover stops, and you get nothing back.

Self-employed and interested in income protection?

Learn more about our different income protection insurance options.

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