Is it worth me getting self-employed income protection?

Being self-employed can bring a huge amount of freedom, allowing you to work wherever, however and whenever you choose which can be fantastic for some people's lifestyles. As with all things though, there are some occasional drawbacks to being self-employed.

When you are employed by a company, you are entitled to get Statutory Sick Pay (SSP) as long as you meet the government's requirements, but what happens if you become unwell and don't have an employer to support you?

A reduction in income, dependant on the amount, could be detrimental to your own personal finances, your business' expenses or in some unfortunate cases, both.

What is income protection insurance?

Income protection insurance is designed to pay self-employed individuals a sum of money should they become unable to work due to an injury or serious illness. Usually this is anywhere between 50% and 70% of a person's pre-tax income and will be paid for either an agreed period, or, until you are able to work again, dependant on your specific policy.

Is it worth me investing in self-employed income protection?

The benefits of income protection insurance include both a monthly income until you are able to work again, and, peace of mind that you will be able to cover your bills during the period in which you are not working.

Whether you have a family or not, if you have bills and other expenses that you feel you would be unable to pay through savings should the worst happen, then investing in income protection insurance is a very wise move.

Something else to keep in mind is that almost all policies allow you to claim as many times as you require whilst the policy lasts, this makes them invaluable should you work in a high-risk job or sector.

How much will income insurance cost me as a self-employed individual?

As with all insurance, the cost is dependent on numerous factors, these include your age, the occupation or industry you are working in, your chosen length of benefit, the amount of income you require, the deferment time and your current health, among other things.

With some research, or by discussing your requirements with an expert, you will find that income protection is not necessarily as expensive as you may have previously thought, and most plans provide options to suit a range of budgets. You will likely also be able to save money by increasing the waiting period before you can begin to receive your agreed monthly benefit.

Misconceptions around income protection

Income protection will cover me if I am made redundant - whilst there are some other options out there if you wish to protect yourself in case you should be made redundant, self-employed income protection is not one of them. As mentioned above, these policies will only cover you should you fall seriously unwell or suffer an injury which prevents you from working.

The government will provide some compensation to support me through this time – it is true that should you be unable to work, the government can provide some money to support you. This will, however, likely not be enough to pay all of your household bills. Usually, the government are able to support you with £88.45 a week if your average weekly earnings surpass £112. One thing to remember here however is that you will be required to pay income tax and national insurance from these payments too.

My insurance provider may not pay out anyway – according to ABI (Association of British Insurers) during the course of 2019 the number of claims surpassed 200,000 and almost 98% of these claims were paid. Providing that you have remained up to date with your premiums and provided accurate information when you took out the policy, claims are almost always paid out. Another tip here is that you should update your insurance provider if your income changes. This means that if your income grows then you receive a pay-out that is similar to your usual monthly income, and if your income shrinks, then you are not over-paying for your premiums.

It wouldn't happen to me – we are all guilty of this on occasion, especially if we are in good health at the moment, however research suggests that at least one in ten of us will, at some point need to take more than six months off of work during our career. So, whilst it is easy to assume, we are immune from illness or accident, the reality is that it could well happen to you and being protected in this instance is vital.

What is not included in self-employed income protection policies?

Usually, standard income protection policies exclude the waiver of premiums whilst the insured individual is off work, injury rehabilitation if required, critical illness cover and death. Some companies however will allow you to add these to your standard income protection if you wish.