Income protection for contractors
Stay financially secure when illness or injury throw a spanner in the works.
A safety net in unpredictable times
Income protection is insurance that replaces part of your income if you're unable to work because of illness or injury. Contractors' income protection can be essential for peace of mind - because you often don't have statutory sick pay as a financial safety net.
Tailoring cover for contractors
Contracting comes in all shapes and sizes, and your income protection should reflect the way you work.
Freelancers and sole traders
If you work alone and don't have regular employer support, income protection can be a lifeline.
- No sick pay fallback: If you get ill or injured, income protection is often your only financial option.
- Cash flow can vary: You can choose a policy that reflects your average earnings and only covers the essentials.
- Deferral periods can help: If you've got emergency savings, choosing a 4-week waiting period can help reduce the cost of cover.
For example: If you're a freelance designer and break your wrist, an income protection policy that kicks in after four weeks could cover your rent and living costs until you're back to full strength.
Company directors and umbrella contractors
If you contract through your own limited company or umbrella company, your policy needs to match your setup.
- Directors' dividends: You can often get more than your monthly income, which can help to maintain your lifestyle during the downtime.
- Check employment terms: Umbrella workers may get some sick pay, but it's often limited.
- Policies under the company: Premiums can sometimes be an allowable business expense and get paid through the company.
For example: Let's say you run your own IT consultancy through a limited company. You could choose a an executive income protection policy that covers 70% of your average income - including dividends - and pay premiums through the company account.
Summing up
Being your own boss has its perks - but a regular income isn't guaranteed if illness strikes. That's where income protection comes in. By tailoring your policy to your contracting setup, you can protect your finances and focus on recovery, not on covering your monthly expenses.
Frequently Asked Questions
Can I get income protection if my income varies?
Yes. Most income protection providers use an average of your income over 12–36 months to work out how much cover you need. If you have a good idea of your annual income, you can tailor your policy around that, making sure it's enough to cover your financial commitments, even if work slows down unexpectedly.
Do I need income protection if I already have savings?
Savings can help for short-term problems, but they often don't last long. Income protection can mean regular payments for months or even years, depending on your policy. It's especially valuable if a condition keeps you off work long-term. You can also choose a longer deferred period to use your savings first and reduce the cost of premiums.
How much will income protection cost me?
How much income protection costs will depend on personal circumstances like your age, job type, and any pre-existing health conditions you may have. Contractors with physical jobs may pay more than those in desk-based roles, and so might a pre-existing condition. You can adjust the deferred period, monthly benefit, and benefit amount to find a good balance between financial security and cost.
What's permanent health insurance?
Permanent health insurance (PHI) is another name for income protection cover in the UK. The same goes for "contractor sickness insurance". You might also see the terms "critical illness cover" (that pays one-off lump sum if you're diagnosed with a serious condition) and "private medical insurance" (which is also available to contractors).
Articles that might interest you
Income protection Insurance for Couples
Because sometimes "in sickness and in health" needs a little backup.
Choosing the Right Income Protection
Your guide to replacing your salary when illness or injury threaten your income.
Income Protection Insurance for Parents
How to protect your family's future if illness or injury stops you from earning a living.
