Answered by Alicia Hempsted
Self-employed professionals in the UK are not entitled to statutory sick pay.
One of the downsides of taking charge of your career and being self-employed is that you are not entitled to statutory sick pay from an employer if an illness or injury prevents you from working. This means that self employed professionals will need to rely on their savings and/or take out appropriate insurance if they can’t work else they will need to try and apply for other government benefits.
The Introduction of Universal Credit
In the past, all self employed people that are unable to work or were forced to reduce their hours and earnings may have been able to claim Employment and Support Allowance (ESA) or Income Support.
However, the new Universal Credit scheme has turned the old benefits system on its head. It’s gradually being rolled out across the country, and the benefits that you were once able to claim separately are now lumped together under the name of ‘Universal Credit’.
Universal Credit payments now include:
- Housing Benefit
- Child Tax Credit
- Working Tax Credit
- Income Support
- Jobseeker’s Allowance
- Employment and Support Allowance
When applying for Universal Credit it can take up to 5 weeks to receive your first payment. In some unfortunate cases while the scheme is in its early days, it has taken longer than 5 weeks for claimants to receive their payments.
Insurance Options for Self Employed Workers
Government benefits aren’t the only solution for the self employed without sick pay or adequate savings to meet their financial commitments.
There are two useful insurance products for self employed workers that can give them financial support if an illness or injury prevents them from working.
Critical Illness Insurance
Critical Illness Insurance pays out a lump sum in the event that the policyholder is diagnosed with a critical illness.
Insurers offer a set list of conditions with the agreement that if you are diagnosed with one of the conditions included on the list, they will pay out a lump sum. The number of conditions that insurers cover can range anywhere between 40 and 100, although the quality of a policy can be found in the definitions of critical illnesses covered by the policy rather than just the number.
One of the main weaknesses of Critical Illness Cover is that it only covers a set list of serious illnesses, leaving you unprotected for a lot of illnesses or accidents that could keep you out of work.
Income Protection Insurance
Self Employed Income Protection is an insurance product that you can use to protect your income if you are unable to work as a result of injury or illness. With this type of insurance, you can claim up to 70% of your usual income in the form of monthly benefits.
Unlike Critical Illness Cover, Income Protection Insurance will cover any health problems you may have as long as they prevent you from working. A definition of incapacity is used to determine whether you are entitled to claim on your policy, with different incapacity definitions used to adjust the comprehensiveness of your policy’s cover.
Make sure you get an own occupation definition of incapacity, which means you’ll be able to claim long as your health problem prevents you from working in your specific role.
Policyholders can also decide on the maximum length of their claims. Choosing Long Term Income Protection allows you to claim these benefits until you reach retirement age if you need them, while Short Term Income Protection will pay out for a maximum of only 2 years.
The solution to a lack of Statutory Sick Pay
To protect your income while you are unable to work, we would typically recommend Income Protection to replace a lack of sick pay. It can cover your important expenses and can be claimed for any type of health problem that meets your policy’s definition of incapacity.
Applying for Income Protection when you’re younger can help you save money on your policy. The cost of Income Protection depends mostly on your risk of claiming, so policyholders that are young and healthy non-smokers can expect to pay a lot less for their policy than someone who is older and perhaps not in great health.
Policyholders can also lock in the cost of their policy by choosing guaranteed premiums. Guaranteed premiums are fixed at the start of your policy and wont’ change in price unless you decide to adjust your policy’s cover.
An Income Protection policy is the most effective way for self employed professionals to protect their income. To get some expert advice from our financial advisers or review quotes from the top UK’s top insurers please don’t hesitate to pop us a call on 02084327333.
Independent Protection Expert at Drewberry
Frequently Asked Income Protection Insurance Questions
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