Income protection plan for the self employed

Income protection plan for the self employed

22 Feb 2022

Everybody gets sick sometimes. If you have the sort of job where you can get comfy on the couch and work from home when you’re poorly, this might not sound like such a big deal. But for those who run their own businesses and those who have to go out and work in order to bring home the bacon, getting sick is a scary thing. Every year, an estimated 141.4 million work days are lost to sickness and injury across the UK. 

To make things worse, the average Brit isn’t great at saving. A third of working Brits say they have less than £600 in savings, with 9% of Brits having no savings at all. Now, if you work for someone else and you get ill or injured, you’ll get Statutory Sick Pay and some time off. If you work for yourself, you might feel like you’re up the creek without a paddle. 

So how can you protect yourself from getting sick or hurt in a way that stops you from going to work? Well, you could wrap yourself in bubble wrap… but that’s not so practical. The bad news is that none of us are perfect, but there are ways to protect your income and make sure you can put food on the table and keep the lights on. It sounds scary but there’s no need to panic! Ever heard of a little thing called income protection insurance

What is income protection?

Income protection is there to - you guessed it - protect your income. If you get seriously sick or injured and you’re unable to work, an income protection plan will help you to carry on covering your expenses until: 

  • You get better and return to work 
  • Your income protection plan reaches the pre-agreed end date and cover finishes
  • Your pre-agreed pay out period comes to an end
  • You retire and finish working
  • You pass away when the policy is in force

This type of policy works by covering a percentage of your income, usually 50-70%. This is paid to you monthly, which helps you manage the pay out just as you would manage your salary. You can decide how long you would like your cover to last for and the percentage of your salary you would like to receive in the event of a claim when you buy your policy. 

It’s important to note that you will likely need to provide proof of income in order to take out an income protection policy. This can be a hurdle for self-employed people, but it doesn’t need to be. You can prove your income with any/all of the following: 

  • Your annual tax return
  • Bank statements
  • Profit/loss statements
  • Self-employed pay slips

Your insurer will let you know what they need to see in order for you to prove your income, but usually any of the above will work.

It’s also important to remember that Income protection will only cover illnesses and injuries that actually stop you from working. Each insurer will determine ability to work differently, but usually you need to be signed off from work by a doctor. 

So how does income protection work for self-employed people? 

40% of people in the UK have no more than £1000 in cash savings. 25% have less than £100 left at the end of the month after paying for essentials. For those who have a reliable payday every month, this might not seem so scary, but throw being self-employed into the mix and you’re looking at a whole lot of financial stress. 

Being self employed is not without its perks. You pick your hours, pick your jobs, pick your holiday - the dream, right? However, a lot more than picking your hours rests on your shoulders. You don’t get an employer who deals with your parental leave or your pension contribution, and if you get sick there’s no one there offering sick leave to bail you out. But if you can’t work, the bills still need paying. You might also have the bills from your business to pay, plus staff wages. 

This is why an income protection plan for the self employed is vital. 

Those most at risk are self employed tradespeople and contractors. When you work a job that requires you to be in good physical health, it can be nearly impossible to continue working when you’re sick or injured.

To add to this, in 2020 the most common income protection claim was for musculoskeletal injury. If someone with an office job suffered a back injury or lost a limb, they may need some time away from work but could probably return after a short recovery period. However, if a builder or a small business owner who needed to be up and about all day suffered a muscle or skeletal injury, they would be unlikely to be able to return to work completely until fully recovered and rehabilitated. 

To put it simply, whilst we’re all at risk of getting injured or sick, some people would be more in need of a little help if it were to happen to them.

How much does an income protection plan for the self employed cost?

The cost of an income protection plan will vary from person to person. It will depend on a few things, like: 

  • Your age
  • Your job role
  • Your health 
  • Your lifestyle (including things like hobbies and smoker status)
  • The percentage of your income you want covered 
  • The conditions you want to be covered for 
  • How long you want your policy to run for

One of the biggest variables in the cost of your policy is the type of job you have. Those with riskier jobs (such as mechanics and construction workers) will typically face higher premiums as they are more likely to become seriously injured and therefore more likely to make a claim. Those with managerial or admin roles are likely to pay lower premiums as their jobs involve very little physical risk. 

Whatever the cost, it’s impossible to put a price on the peace of mind income protection can bring you. Personal finances - especially when you’re self employed - are not something to be taken lightly. If you worried about what life would be like if you couldn’t bring home the bacon, get in touch with us here at LifeSearch today. We’ll make things a little less scary.

Let us get to know you and do the hard work for you

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