Can You Get Income Protection if You Are Self-employed?

Earlier this year, the Office for National Statistics revealed that the number of self-employed people in the UK between January to March 2022 numbered 4.2 million. That makes up around 13 percent of the total number of individuals employed in the four nations.

Being self-employed certainly has its advantages. You can work when you like and, often, where you choose – provided you meet a client's deadline.

Where it's less attractive, though, is in terms of company sick pay or statutory holiday pay, i.e., there's none. And that means there's no security net if you get ill. It can be particularly frightening if your illness is long-term or you injure yourself so badly you cannot work. The solution for many self-employed individuals or contractors is to take out self-employed income protection.

How does self-employed income protection work?

Having self-employed income protection means you are guaranteed to receive a certain amount of money each month if you are unable to work or are on holiday. Ideally, this figure is enough to pay off regular bills, such as your mortgage and car payments, buy food, etc. In other words, enough to see you through a 'lean time' without having to dip into your savings. Typically, this is worked out as a decent proportion of your regular income and is usually around 50 to 70 percent of your average monthly earnings.

How long you can continue to claim your self-employed income protection payments depends on how long your illness lasts until you can return to work or until the policy ends (i.e., whether you have taken out short or long-term protection). It may even be until you retire, i.e., a considerable number of years. You can usually make more than one claim as well.

What is a deferred period?

A deferred period is the amount of time you have to wait until you receive your first payment after making a claim. In the worst-case scenario, this can be up to four months. Or, it can be within one month. When taking out your self-employed income protection policy, you can often choose how long this should be.

Typically, when self-employed, you will earn a varying amount of money each month. However, you'll need to make a certain standard amount to pay off your monthly outgoings, such as mortgage payments, rent, utility costs, childcare etc. It's this basic amount that your self-employed income protection policy should aim to cover.

What affects your income protection payments?

The riskier your job, the more you will pay in insurance premiums. A 'risky' job is one where you're more likely to be injured, e.g., construction workers and roofers, heavy machine operators or agricultural workers etc.

The older you are, the higher your premium (you're more likely to become ill). The state of your health will also have an effect, i.e., if you suffer from a condition which could result in your being off work for months at a time.

Your payments will also be higher if you claim more each month and your deferred period is short. Also, the longer your self-employed income protection policy period is, the higher the payments will be.

Always check the 'small print'

Self-employed income protection policies differ depending on how each defines 'inability to work.' You may be fit to work under the terms and conditions of one policy but not another. For example, one policy may state that provided you can return to work in some capacity (even if it means in a different role), your claim won't be honoured. Others may cover you for your own occupation/role.