Income Protection Insurance For Contractors

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As a contractor or company director of a limited company, it’s unlikely you’ll receive sick pay if you’re unable to work. This makes Income protection an important type of protection to consider. But what exactly is it?

In our ‘Complete Guide To Contractors Income Protection’ we’ll take you through everything you need to know 👇

What Is Contractors Income Protection?

Income protection for contractors (otherwise known as Executive Income Protection) will pay out a monthly benefit if you’re unable to work due to accident or sickness. As a policy it can:

  • Cover up to 80% of your salary and dividend drawdown from your company. This includes pension and National Insurance contributions
  • Protect your partner’s dividend drawdown if they’re in a non-profit-generating role and wouldn’t continue to create income for the business in your absence
  • Pay out as soon as 1 week of illness or injury
  • Protect your earnings right up until your expected retirement age.

Why Is Contractors Income Protection Important?

This particular type of policy protects your outgoings, such as your mortgage / rent, bills and utilities, and groceries. It safeguards against financial instability due to illness or injury, ensuring a steady income when you’re unable to work.

This cover is especially important for contractors who lack the sick pay benefits of regular employees, protecting your livelihood and providing peace of mind in uncertain times.

According to consumer group Which? Income protection is the one policy every working adult should consider.

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How Does Contractor Income Protection Insurance Work?

Just like personal Income Protection, Income Protection for Contractors, pays out a monthly benefit if the policy holder is unable to work due to accident or sickness. This benefit is designed to then cover monthly outgoings such as:

  • Mortgage / rent
  • Food
  • Household bills
  • Loans / credit cards.

There is however one distinct difference between the two, and that is how the policy is paid for. Rather than you paying for the premiums out of your own bank account, you can pay for them through your limited company.

This has advantages as it can offer significant tax savings, we discuss this in more detail later.

What Does Contractor Income Protection Cover?

Under the ‘own occupation’ definition of incapacity, Income Protection will cover you for anything that medically prevents you from doing your specific job. There are very few standard exclusions on a policy. However, many providers limit claims resulting from:

  • Self-inflicted injuries
  • Drug or alcohol misuse / abuse
  • Travel to a country with political instability, internal conflict, or an active epidemic that the Foreign Office has advised against.

Other than these exclusions, coverage is determined by your pre-existing medical history.

Each insurer will have different definitions of ‘Incapacity’. It’s important to understand what these are as it’s how they determine whether you are fit or not to work.

Does It Cover Pre-Existing Health Conditions?

It depends on the health condition, its severity and whether you’ve suffered with it in the last 5 years. Any conditions need to be declared when applying for Contractor Income Protection insurance.

Each insurer has its own view on pre-existing conditions, and is likely to do one of the following:

  • Cover the medical condition on standard terms
  • Include the medical condition for an increased premium
  • Exclude the medical condition altogether.

If a condition is excluded by your insurer, it may be reviewed after a certain period. This is only if you haven’t received any advice, medication, or treatment for said condition. But it’s entirely down to the insurer’s discretion.

Samantha Haffenden-Angear, Independent Protection Expert at Drewberry

At Drewberry™, we have direct access to UK insurers, putting us in a great position to get you the most competitive terms on your policy.

If you need any help please do not hesitate to pop us a call on 02084327333 or email

Samantha Haffenden-Angear
Independent Protection Adviser

What To Consider When Taking Out Contractors Income Protection

Like with any type of insurance, there are a number of factors that you need to consider when taking out a policy. It’s no different with Contractor Income Protection. We’ve put some of the key considerations below.

Benefit Amount Needed

One of the most important considerations when taking out a policy, is how much cover you need. With Income Protection it is possible to cover between 50- 80% of your gross (pre-tax) salary.

The benefit amount you need, will depend on your personal circumstances. It can be tempting to opt for the maximum cover, however this will end up being more expensive. The best thing to do is consider your core outgoings first and align your benefit with them.

Length Of Deferral Period

A deferral period is the set amount of time between you making a claim and your benefit amount being paid out. These can range from 1 day to 52 weeks. If you do have savings and can afford to opt for a longer deferred period, it’s worth considering as it will bring your premiums down.

Payout Length

It’s also important to think about how long you would want your benefit amount to pay out for. Many insurers offer short and long term policies.

Short-term plans, will only pay you a monthly income for 1, 2 or 5 years, whereas a long term policy will continue paying out until you are well enough to return to work, or to the end of your policy.

Bear in mind that in the average claims length for insurer Liverpool Victoria is 5 years and 3 months.

Policy Cease Age

This refers to how old you’ll be at the end of the policy. Most people align it with their planned retirement date. Many providers will allow you to take out cover that lasts all the way up to age 70, but this will significantly increase premiums compared to a policy that ends at age 65 or even age 60, so consider this carefully.

Premium Type

With an income protection policy, there are three main types of premiums you can choose from:

  • Reviewable premiums
    The insurer is able to ‘review’ these premiums as they see fit. Your premiums may increase in a year due to the number of claims made, for example. This makes it hard to know what you’ll pay each year for cover
  • Age-banded premiums
    These premiums will also increase over time. Unlike reviewable options, these can only increase by a percentage and to reflect the greater risk of claims as you age. This means you’ll know exactly what you’ll pay each year. Premiums tend to start out cheaper
  • Guaranteed premiums
    Guaranteed premiums cannot change over time. Your premium is fixed from the outset of the policy. While they start out more expensive than age-banded, they often work out cheaper during a long-term policy as they can’t rise over time.

Your Definition of Incapacity

Definitions of incapacity determine how unwell you need to be to make a claim. ‘Own Occupation’ is the best type. The most difficult one to claim on is the ‘Any Occupation / Work Tasks’ definition.

These are three definitions an insurer may use:

  • Own Occupation Cover
    This means you’ll get your benefits as long as your injury or illness prevents you from doing your specific work duties. For example, a contractor who runs an architecture business and injures their hand wouldn’t be able to complete technical drawings, and could make a claim.
  • Suited Occupation
    To claim suited occupation, you must be unable to do your current job or any other role where you have experience or skills. An architect with a hand injury might not be able to do their job but may have the skills and experience for another. In this case, they would most likely not be able to claim under suited occupation.
  • Any Occupation / Work Tasks
    You can only claim if you reach a level of ‘unfit to work’ that makes you unable to work in any job or perform a set number of tasks in basic roles. This is the most difficult incapacity definition to claim on. We recommend that clients avoid this.

Should I Link My Policy To Inflation?

When you take out a long-term policy, you’re at risk of the payout being consumed by inflation. If you index link the policy, your insurer will write to you yearly to explain the cost increases of goods and services (known as the Retail Prices Index).

They will allow you to increase the benefit by the same amount to maintain pace with inflation. But this means your benefit and premiums will rise to take into account the higher benefit.

Covering Dividend Payments

Many contractors pay themselves a small salary. They then top the rest up with dividends to maximise tax efficiency. To cover dividends, you must be actively contributing to the success of your company. This is either as part of a team or as the sole employee.

If you are a director of your own business, many insurers will allow you to cover this payment. In other words, the dividend must be paid to you in lieu of salary for work undertaken.

rauri taylor, independent protection expert at drewberry

Be cautious if your income rises and falls as you win and complete contracts. Some insurers will base the maximum amount of cover on an average of the last 3 years of earnings.

Others will base it on earnings over the previous 12 months. This can make a big difference when it comes to a claim.

Rauri Taylor
Independent Protection Adviser

Do I Need Contractor Income Protection Insurance?

Whether or not you need protection is down to your own personal circumstances. However putting a policy in place can provide financial security if you’re unable to work due to accident or sickness.

Why Take Out Contractor Sickness Insurance?

None of us want to think about becoming unwell or getting injured, but there are no guarantees. And although we can’t predict the future, we can prepare for it.

Could You Rely On Savings Or State Benefits?

As well as managing the risks of becoming unwell, it’s important to think about how you would cope financially if you were unable to work. Do you have savings to fall back on? How long would they last for? Could you cope on State Benefits?

Why Self-Employed Finance Blogger, Mrs Mummypenny Took Out Income Protection…

Being protection experts, we know how important it is to put cover in place, but don’t take our word for it. We caught up with the award winning finance blogger ‘Mrs Mummypenny’ to she why she took out Income Protection. Take a look 👀

How Much Does Contractor Income Protection Cost?

How much your cover costs will depend on your own personal circumstances. However, there are certain policy and personal factors that will impact what you pay.  We’ve outlined these below and provided example quotes. These are based on:

  • A healthy office-based contractor
  • A benefit of £2,000 a month
  • 4 week deferral period
  • Long-term cover and cease age of 65
  • Guaranteed premiums.


Each provider has their own view on risk, because of this they will charge different premiums. When looking at cover its always best to compare providers. You could have 2 very similar policies but one provider charge more than the other due to different risk appetites.


UK Insurer Aviva logo UK Insurer Aviva logo



Quotes correct as of Feb 2024


Age is another factor that will impact your premiums. Unfortunately, the older we get the more susceptible we become to illness. As a result premiums will increase with age.







Quotes accurate as of Feb 2024

Deferred Period

As mentioned, the deferred period is the amount of time between you making a claim and your benefit amount being paid. The longer the deferred period you choose the cheaper your premiums will be.

Deferred Period

Cost Of Policy

4 weeks


8 weeks


13 weeks


Quotes correct as of Feb 2024

Smoker Status

It will come as no surprise that some insurers will increase the cost of premiums for smokers. This is due to the associated health risks that come with smoking.

Smoker Vs Non-Smoker





46% increase for smokers 😮

Quotes correct as of Feb 2024

Medical History

Your medical history will also play a part in how much you pay. If you suffer from a pre-existing condition insurers may choose to increase your premiums. Or, they may exclude the condition from your policy all together.


If you have a job which is deemed as higher risk, your premiums may be bumped up. This is because certain occupations, such as scaffolders and builders, are at a higher risk of needing time off work due to accident and injury.


Making A Contractor Income Protection Claim

To make a claim on your policy, you’ll need to contact your income protection provider’s claims team. Instructions on how to do so are usually included in your policy documents.

You will need to supply your insurer with a completed claims form and evidence of your condition. A note from your GP should suffice.

Online or via post are the typical methods of submitting a claim. But it’s becoming increasingly possible to make claims over the phone.

Receiving A Payout

Once your claim is approved by the provider, you will need to wait out your set deferred period.

If you still can’t work after this period, then you’ll begin receiving a monthly income to replace your lost wages.

You’ll receive this until either:

  • Your payout period expires (short-term policies)
  • You’re well enough to return to work, or
  • You retire if you can never work again (long-term policies).

Neil’s Cancer Claim With British Friendly

Neil is a client of Drewberry who took out an income protection policy with British Friendly. He was a member for 4 years before he needed to claim.

Unfortunately, he became unwell and had pains in his stomach. After seeing his GP and having further tests, Neil was diagnosed with stage 2 Bowel Cancer. He then needed to make a claim. Find Out More About Neil’s Claim 👇

How Is Contractor Sick Pay Insurance Taxed?

If you pay for income protection insurance through your limited company, it’s taxed differently from a personal plan. While payouts from a personal policy are tax free, a limited company policy differs.

Company Paid Premiums Results In Taxable Claims

As tax relief is available on premiums for a contractor policy, you’ve not paid any tax on those premiums. Tax is then due on the benefit instead.

This is why you’re permitted to insure more of your gross income—up to 80%—with contractor income protection. You need to take into account the fact that tax is taken at the source before you see the benefit.

The tax relief goes into your limited company. It is up to you and your accountant to distribute it from there in a tax-efficient manner.

Is Contractor Income Protection A P11D / Benefit In Kind?

Another benefit of the company owning the cover is it’s not usually classed as a P11D or benefit in kind. HMRC sees it as an allowable business expense, so the premiums are deducted from your corporation tax bill.

Common Contractor Income Protection Questions

  • Can contractors get Critical Illness Cover?

    Contractors can get Critical Illness Cover, but only if they pay for it personally. Unlike income protection, there isn’t an executive policy which can be owned and paid for by the limited company.

    Another option you may want to consider is Relevant Life Insurance. A policy which protects from the risk of passing away. This can also be owned and paid for by your limited company. As a result, it can have significant tax savings over a personal policy.

    Relevant life insurance will pay out a multiple of your remuneration if you were to pass away. This is tax free as it’s written into a trust from the outset.

  • How long is income protection paid for?

    You can choose how long your income protection will pay out. In most cases, especially for contractors, it’s sensible to protect yourself up until your expected retirement age. This will ensure that your outgoings are protected right until you start accessing your pension pot.

  • Can contractors get income protection?

    If you are a sole trader or company director, income protection policies are important as sick pay isn’t provided by an employer. As long as the contractor works more than 16 hours a week and pays taxes, they can take out a personal or Executive Income Protection policy.

  • What is executive income protection insurance?

    Executive income protection is a policy which is owned and paid for by a limited company for a director or single employee.

    As many contractors work through their own limited company, income protection offers a financial safety net should you be too ill or injured to work.

    If a claim arises it is paid back into the company and it’s up to the individual to distribute the funds as income.

  • Is income protection insurance a business expense?

    Contractor income protection insurance is an allowable business expense if you pay for premiums via your limited company. As premiums are tax-free, should a claim need to be made, the benefit will be taxed as income.

Providing Income Protection Cover To Employees

If you’re looking to extend your income protection to other co-directors or employees, Group Income Protection is a good idea.

This works in a similar way to contractor income protection policies. Except it’s a single policy that covers multiple people, rather than one person.

If an employee covered by the policy gets ill or injured, the insurer will pay out their benefits to the company. This will be delivered to the employee in the same way they receive their salary.

Group policies usually need at least five employees to be covered. Terms, cost and cover can be quite different depending on the insurer, group size, and your employees’ circumstances.

Nadeem Farid Head of Employee Benefits at Drewberry

If you’re looking to include staff on your policy, it’s best to speak to one of our financial experts who can talk you through your options.

Please don’t hesitate to pop us a call on 02084327333 or email us at

Nadeem Farid
Head of Health & Wellbeing Benefits at Drewberry

Compare Best UK Contractor Income Protection Providers In 2024

There are a variety of income protection policies available in the UK. But only a limited number of providers offer company-paid policies.

Here are the three major insurers offering executive income protection for contractors:

In some circumstances an executive policy might not make sense. Some contractors choose to take out a personal policy which is paid from their net pay.

Read our complete reviews of each of the income protection providers below. It might also be useful to read our comprehensive guide to the best income protection policies in the UK.

Remember that the cheapest plan isn’t always the best option for you. Policies and providers vary considerably.

Get Contractor Sickness Insurance Quotes & Expert Advice

With contractor income protection, it’s a little more complicated than a personal policy because of how it’s taxed. To ensure you get it right, it’s worth speaking to an expert.

If you need any help with choosing the right income protection policy for you, please don’t hesitate to pop us a call on 02084327333 or email us at

Why Speak to Us?

We started Drewberry™ because we were tired of being treated like a number.

We all deserve a first class service when it comes to issues as important as protecting our health and our finances. Below are just a few reasons why it makes sense to talk to us.

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