Income protection Insurance for Self Employed
How to find financial security when illness or injury means you can't do your job as usual.
What is income protection for the self-employed?
Income protection is insurance that pays you a regular income if you can't work because of illness or injury. If you're self-employed, there's no sick pay or income protection benefit to fall back on, so this is a way to keep the bills paid and keep up your lifestyle while you focus on getting better.
Financial security when you work for yourself
As a freelancer or sole trader, your income depends on your ability to work. Income protection insurance gives you some breathing room while you're out of action.
No sick pay safety net
- Unlike employees, self-employed workers don't get statutory sick pay.
- Your income can stop overnight if you can't work, leaving rent, bills, and essentials unpaid.
- Income protection can pay up to 60–70% of your earnings until you're well enough to come back.
Flexible cover to match your needs
- Choose a "defer period" (the waiting time before payments start) of a month or several.
- Short-term policies may pay out for 1 or 2 years - long-term options cover you until retirement.
- Some policies let you cover specific jobs, like tradespeople or freelancers.
Things to consider before you apply
Not all income protection is created equal. It's important to weigh up your personal situation, including your budget and how long you could manage without income.
Your financial buffer
- Ask yourself how long you could get by with savings or emergency funds.
- A longer defer period often means lower monthly premiums - but make sure it's realistic.
- If you've got mortgage payments or dependents, a quicker payout option may be better.
Occupation and lifestyle
- Some insurers rate jobs by risk - manual labour roles might cost more to insure.
- Your health and habits (like smoking or risky hobbies) could also impact the price.
- Always give accurate details - this helps avoid problems when you make a claim.
Summing up
Income protection for the self-employed offers vital peace of mind when you're your own boss. It helps you cover everyday costs if you can't work due to illness or injury, meaning you can rest and recover without worrying about the bills piling up.
Frequently Asked Questions
How much of my income can I protect?
Most income protection covers around 50% to 70% of your usual pre-tax income. This is usually based on your average earnings over the past 12 months, or sometimes longer if your income is up and down. The idea is to cover expenses - like rent, bills, and food - while getting you back to work when you're able. For self-employed people, having up-to-date business accounts and tax returns is vital when you apply or make a claim.
Is income protection the same as critical illness insurance?
No - they're quite different. Critical illness cover pays out a one-off lump sum if you're diagnosed with a serious condition like cancer, a stroke, or MS. It's often used to clear debts or pay for medical treatment. Income protection pays you a monthly income if you're unable to work due to any illness or injury (not just specific ones).
Can I get income protection if I have a pre-existing condition?
Yes, but the terms might be affected. Insurers will typically review your medical history and may either exclude cover for the specific condition, charge a higher premium, or offer standard terms depending on how well-managed and stable your condition is. The main thing is to be completely honest when you apply - if you withhold anything relevant, your policy could be invalidated when you go to make a claim.
How soon does income protection pay out?
Your policy will only start paying out after the defer period you choose has passed. This is the waiting time from when you stop working to when your monthly benefit starts. A shorter defer period means you'll get paid sooner - but the premiums will usually be higher. Choose a defer period based on how long you could realistically manage without your regular income.
Are income protection payouts tax free?
Income protection policies can be treated differently for tax, depending on who pays for them. If you pay the premiums personally, the payouts are typically tax-free. But if they're paid for as a business expense, they're usually subject to income tax. Since the payout counts as income, it might also affect your eligibility for certain government benefits (such as Universal Credit).
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