As self-employed people don’t benefit from sick pay or redundancy pay, it might be worth having self-employed income protection.

Income protection for self-employed people is an insurance policy that pays out if you can’t work due to an injury or illness.

Having this kind of insurance in place could protect you from being out of pocket during a difficult time. This could leave you with one less thing to worry about.

By getting income protection insurance, self employed people can stop worrying about what’d happen if they were too ill or injured to work.

You can have the peace of mind that even if you couldn’t work, you’d still have some self-employed income for mortgage payments, debts and bills. You’d still be able to look after your family and possibly even maintain the same lifestyle, depending on how much cover you get.

It can be especially attractive to people who work in dangerous industries where they’re at high risk of being injured and unable to work.

What types of self-employed income protection are there?

There are several types of self-employed income insurance to think about. These include:

  • Self-employed sickness insurance: You can arrange to have your income protected if you have a short-term illness. You could also get protection for more serious illnesses that mean you can’t work. Or, you can arrange a lesser cover which won’t replace your income, but will give you the equivalent of statutory sick pay. These are both types of self-employed sick pay insurance.

  • Self-employed injury insurance: This replaces your income if you can’t work due to an injury?

  • Self-employed sickness and injury insurance: This is a combination of the two types of insurance above.

How does self-employed income protection insurance work?

Income protection is an insurance policy that protects you if you can’t work because of an illness or injury. If you’re self employed, income proof yourself for peace of mind.

For the self-employed, no income can be a daunting prospect. But with income protection for self-employed people you make regular monthly payments to your insurer. Then, if you need to make a claim, you do so, and it pays out.

Some self-employed work insurance policies are short-term, so they only pay out for a specific time period. These policies are designed to help you when you’re facing a temporary challenge, until you can get back to working again. They might pay out for a year or two.

If you’re never able to work again, some sickness insurance for self-employed people will pay out until you die.

It all depends on what kind of self-employed sick pay insurance you choose.

What are the main benefits of income protection?

The main advantages of income protection self-employed will benefit from include:

  • You’ll have a monthly income until you return to work

  • You’ll have peace of mind that you could cover your bills if you were too ill or too badly injured to work

  • You won’t need to dip into your savings to get by during a difficult time

  • It’s a tax-free benefit

  • You can choose a level of cover that suits your needs and budget

  • It makes the jump from employment to self-employment less daunting, knowing that there’s a way to protect yourself in the event of illness or injury.

Here’s how to decide if you need income protection.

Are there any downsides to income protection?

The main downside is the monthly premium you’ll pay for income protection insurance for self-employed people. Of course it’s the same situation with any insurance you buy. But many people feel it’s worth it if the time comes that you need to claim on your self-employed loss of earnings insurance.

When it comes to doing your income tax for self-employed earnings, personal insurances aren’t tax-deductible. You can get executive plans which might be tax deductible.

How to find the best self-employed income protection cover for you

Finding the right income insurance for self-employed people can be difficult, as your income may not be consistent each year.

When you’re looking for the best income protection for self-employed people that's right for you, it’s wise to get a few quotes. To do this, you’ll have two decisions to make.

Firstly, you’ll need to think about what income you want if you can’t work. You can choose between a percentage of your annual income, or a fixed amount that you’ll need your insurance policy to pay out. Some insurers cap the amount you can get each month or year.

You’ll need to think about what length of time you want the policy to pay out for. You can usually get cover until a set age, which varies depending on which insurer you choose.

You’ll need to base your decisions on your outgoings and commitments. Think about what debts you have, your mortgage or rent, your usual income and the size of your family.

When you apply for self employed income protection, insurers will ask you for at least one year's audited accounts as proof of your income.

What affects the cost of income protection for self-employed people?

The cost of your self-employed income protection is based on a range of factors. These include:

  • How much you want the policy to pay out

  • The likelihood that you’ll find yourself unable to work

  • Your age

  • Your lifestyle, including whether you smoke and exercise

  • Your health (history, current health, weight, family medical history)

  • What job you do (whether it’s high risk)

  • How long the ‘waiting period’ is before the policy kicks in.

To work out how much cover you need, add up all your debts including your mortgage, loans, credit cards and so on. Then add on any expenses you’d need to cover like food, childcare, holidays. This will help you calculate what level of cover you should be looking to buy.

What exclusions are there?

Like most kinds of insurance, self-employed income insurance has exclusions which you’re not covered for.

Some of the standard exclusions include illnesses or injuries caused by:

  • Criminal activity

  • Illegal drugs

  • Alcohol or other substance abuse

  • Travel to countries that the Foreign Office has advised against

  • Regions with epidemic outbreaks.

What if you have pre-existing health conditions?

When you apply for accident and sickness insurance for self-employed people, you may have to fill out a medical questionnaire. You’ll need to declare any medical conditions you’ve suffered in the past five years.

If you have a pre-existing or chronic condition, the insurer is likely to do one of three things. These are:

  • Provide loss of income insurance for self-employed people on their standard terms

  • Provide sick pay insurance for self-employed people, but for an additional premium

  • Exclude the condition from your cover.

You might be able to get this reviewed after a certain period of time if you don’t seek any advice, medication or treatment for it.

It’s crucial to be honest about your medical history when you take out your insurance. It could invalidate your policy if you’re not. If your insurer checks your medical history and sees you were dishonest or left some information out, they might refuse your claim.

What other insurance policies is it worth considering if you’re self-employed?

There are several types of insurance that might be worth having if you’re self-employed. These include:

  • Life insurance – which is particularly helpful if you’ve got a family and dependents

  • Mortgage protection insurance – this would make your mortgage repayments if you couldn’t work

  • Critical illness – it’s a bit like income protection but for more serious illnesses like cancer and heart attacks. It’s not used for everyday illnesses such as a bad back. It usually pays a lump sum

  • Private medical insurance – by going private, you’d get treatment more quickly. This means you wouldn’t be losing earnings while you’re on a long NHS waiting list.