Income Protection for Self Employed

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09-05-2021

Self Employed Income Protection provides you with a replacement monthly income if you cannot work due to any accident or sickness.

The monthly benefit payments are designed to cover your core financial commitments including:

  • Rent / mortgage payments
  • Household bills
  • Credit cards / loan repayments
  • Groceries
  • Childcare costs
  • Other essential expenditure.

It is particularly important because individuals who manage their own business tend to have little or no sick pay and rely on the income they generate to survive.

EXPERT TIP 🤓
According to consumer group Which?, Income Protection is the one policy every working adult should consider.

Covering You For All Types Of Accident, Sickness & Injury

Self employed income protection insurance is a highly comprehensive form of protection insurance, covering practically any medical condition that prevents you from working (subject to any pre-existing medical history) including but not limited to:

  • Back conditions and other musculoskeletal issues
  • Depression and mental health conditions
  • Heart attacks & heart disease
  • Cancer, stroke and other serious illnesses

When you work for yourself, you have no employer to offer a level of sick pay if you are unable to earn an income. Many of our clients therefore use an Income Protection policy as a substitute to protect their earnings if they’re ever off sick.

  • Pays a tax-free monthly benefit if you ever can’t work through illness or injury
  • Can protect up to 70% of your gross (pre-tax) income
  • Covers you if you can’t do your specific role when you choose own occupation cover
  • Can pay out from as short as 1 week off work due to accident or sickness
  • Can pay out right up until you retire when you choose long-term protection.

Are There Any Exclusions?

As with all types of insurance, there are some blanket exclusions which apply to everyone. For example, you can’t usually claim for illnesses / injuries sustained:

  • During criminal activity
  • From illegal / illicit drug use, substance abuse or alcohol misuse
  • During overseas travel to areas of active internal conflict, high terrorism risk, political instability or countries the Foreign and Commonwealth Office (FCO) has advised against visiting.

Does It Cover Pre-Existing Conditions?

When you set up your self employed Sickness Insurance, the insurer will ask you to declare any existing medical conditions from the outset. If you have any pre-existing conditions, the insurer will do one of the following depending on the severity:

  • Cover the condition on standard terms (which means you won’t face any difference in price or terms compared to a healthy individual)
  • Cover the condition for an additional premium
  • Exclude the condition but offer a date at which it will consider reviewing the exclusion
  • Exclude that condition entirely (perhaps with a premium discount to compensate).

Getting covered with pre-existing conditions can be tricky. Fortunately, our team of experts know the market and each insurer inside out.

We therefore understand which self employed income protection insurance policies may offer more lenient terms depending on your circumstances.

That’s why it’s worth talking things through with an expert — don’t hesitate to pop us a call on 02084327333 or email help@drewberry.co.uk.

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Why Is Self Employed Sickness Insurance So Important?

There are plenty of benefits to being self-employed. You’re your own boss, so you set your hours and are free to work as you please.

However, there are downsides as well, with one of the biggest being that you don’t get any sick pay.

One of the most common questions we get asked is whether the self employed can get statutory sick pay.

Are Self Employed People Entitled To Statutory Sick Pay?

A worker employed full-time, on the other hand, is usually contractually entitled to 26 weeks of Statutory Sick Pay from their employer if they’re off sick. This is worth £95.85 per week. Many employers offer more than this as standard.

If you’re self-employed you don’t get this benefit. Instead, you’ll have to see if you can claim government incapacity support, known as Employment and Support Allowance. This starts at £74.35 for over 25s.

Although other government benefits are available depending on the severity of your illness, they’re rarely sufficient to replace average UK household expenditure of nearly than £600 per week in the financial year ending March 2018.

What’s the Risk of Illness or Injury?

According to another Drewberry survey,1 in 6 people aged over 55 said they’d needed to take 6 months or more off work due to illness or injury at some point during their career.

Meanwhile, Office for National Statistics figures reveal that 2.16 million people were ‘economically inactive’ (i.e. not seeking work) due to long term illness in the 3 months to August 2020.

Clearly, these are long-term disabilities that go beyond your usual coughs and colds, or even broken arms and legs if they’re keeping people off work for months.

That’s why Self Employed Sick Pay Insurance can be so important. After all, if you’re self employed and working for yourself you have less government support than employed people and no employer sick pay.

Finance Blogger Mrs Mummypenny Recommends Income Protection…

That’s why self employed finance blogger Mrs Mummypenny took out Income Protection. She wanted the valued peace of mind that you and your family get when you know your monthly income is protected.

What About Unemployment Insurance?

Unemployment Insurance is designed to protect employed workers from forced redundancy. It pays out a short-term monthly income (for a maximum of 12 or 24 months) if you lose your job and you’re out of work through no fault of your own.

Taking out Unemployment Insurance is not something we typically recommend for self employed individuals. This is because, even if they weren’t working, self-employed professionals are still technically employed by themselves and so would be highly unlikely to be able to make a successful claim.

How Does Income Protection For Self Employed Work?

This is a policy that will cover your financial outgoings should you be too ill to work. There are a number of factors you need to understand and make sure are correct when setting up your policy.

How Much Cover Do I Need?

The level of cover is the monthly amount that will be paid out should you need to claim. The higher the figure you cover, the more your premiums will cost.

You can insure a maximum of 70% of your gross (pre-tax) self employed income. However, some providers only allow you to insure up to 50% of your income, so check carefully.

If you’re a sole trader, you establish your gross self employed income by taking your total revenue and subtracting business costs (for example materials). This is the figure you pay tax on and also what you base your level of cover on.

What Is The Deferred Period?

You need to set a deferred period when setting up your policy. It is how long you wait for the insurer to pay out if you can’t work due to an accident or sickness.

The longer your deferred period, the lower your premiums. For example, a 13 week deferred period can cut premiums by up to 50% when you compare it to a 4 week deferred period.

The shortest deferred periods are 1 week, while the longest are 12 months.

If you can extend your deferred period by relying on your savings or any sick pay it can significantly reduce your monthly premiums.

How Long Should Your Cover Last?

From the outset you will need to set the age when you want the policy to end. You usually link this with your retirement age or when you expect to be financially secure and no longer reliant on your income.

The older your cease age the more you are likely to suffer an illness, so the more your premiums will cost.

While many providers offer a cease age of all the way up to 70, this will notably increase premiums.

Do You Need Budget Or Comprehensive Cover?

Should a claim arise a budget plan will pay a claim for a limited amount of time regardless of whether you are well enough to return to work. Comprehensive long term cover will continue to pay a claim right up to the end of your policy should you been unable to return to work.

The short-term budget policies only pay out for up to 1, 2 or 5 years per claim. While it’s a cheaper option, a time limit works against you if you become so ill you can’t ever return to work.

Long-term cover, on the other hand, is unlimited. It’s the more expensive option, but continues paying out right up until retirement if your illness or injury stops you from working ever again.

Given leading insurer LV= has an average claim length of 6 to 7 years it makes sense to opt for long term cover if budget suffices.

Should I Choose Guaranteed Or Age Banded Premiums?

When setting up cover you have two types of premiums to choose from:

  • Age-banded premiums
    Your premiums will rise each year in line with your age based on a preset amount in your policy documents. The increase is solely linked to your age and the growing risk of you claiming as you get older.
  • Guaranteed premiums
    The insurer cannot increase premiums unless you change the plan. While this has its benefits, they’re not suitable for everyone. For instance, manual workers often get better rates with age-banded premiums, so don’t discount anything until you’ve examined all your options.

Guaranteed premiums tend to be more expensive and for certain higher risk occupations may not be available at all. Which premium type is best for you will come down to your current occupation and your budget.

How Much Does Self Employed Income Protection Cost?

When calculating the cost of cover it depends on an array of personal factors, such as:

Your Age

As we get older, we become more likely to suffer an injury or become ill. Older people therefore face higher Income Protection premiums.

Your Health / Medical History

Depending on your condition and your insurer, you may face higher premiums if you have a pre-existing condition or an adverse medical history.

Smoker Status

Being a smoker means you’re more likely to get ill, and more seriously ill, than if you’re a non-smoker. Most insurers (although not all of them) therefore charge smokers higher premiums.

Occupation

Some jobs involve more risk than others. For example, manual workers are more likely to have an accident on the job than office workers.

Moreover, the physical nature of manual work means you’re more likely to be unable to work due to an illness or injury.

For this reason, those in riskier jobs pay more for their self employed income protection insurance.

Average Cost Of A Self Employed Policy in 2021

We’ve calculated the cost of Income Protection based on the fact that the individual in question is:

  • In good health
  • A self employed domestic plumber
  • A non-smoker
  • Seeking a benefit of £1,500 a month
  • Looking for a 4 week deferral period
  • Going to retire at age 65
  • Looking for long term protection that will pay out until retirement if they can never work again.

We calculated these prices using our income protection quote tool. We compare the top 10 UK insurers and the premiums represent the cheapest cover that match the above criteria.

25 Years Old

£22.53 per month

35 Years Old

£30.37 per month

45 Years Old

£48.63 per month

Income Protection quotes accurate as of March 2021

How Does HMRC Tax It?

This depends on how you work and how you pay for the policy.

For Company Directors and Contractors

As mentioned, if you work through your own limited company as a contractor or director, there are some executive policies where your company can pay for the Income Protection.

Here, premiums are eligible for corporation tax relief. However, as you don’t pay tax on premiums, HMRC taxes the benefit instead when you make a claim. It’s therefore important to gross up the benefit (insure yourself for a higher figure so you get the correct amount net of tax) to compensate.

For Sole Traders

If you’re self-employed and work for yourself without a limited company, then there’s no ‘entity’ to own and pay for the policy on your behalf.

Sole traders must therefore pay for Income Protection personally, from your individual bank account. Sole traders can’t typically claim protection insurance policies as a business expense.

However, with personal protection, insurers pay claims tax-free as you pay premiums using income HMRC has already deducted tax from.

How Do I Make a Claim? Will It Payout?

When making a claim it is best to make the insurer aware as soon as you become too ill or injured to work. You will need to complete a claims form and the insurer will assess the medical evidence to approve the claim.

We have a claims team to support you through this process and make it as smooth as possible so you can focus on your recovery.

Neil’s Cancer Claim With British Friendly

Neil is a client of Drewberry and took out a self employed Income Protection policy with British Friendly. He was a member for 4 years before he needed to claim.

He became unwell and had pains in his stomach. After consulting his GP and having some further tests Neil was diagnosed with stage 2 Bowel Cancer and needed to make a claim.

🤕 Read More About Neil’s Claim

Which Insurers Pay the Most Claims?

Most self employed people understandably want to choose cover by picking the insurer that’s most likely to pay out when they need it the most.

However, it’s actually fairly hard to distinguish one provider from another in this area. Payout rates across the industry are not only higher than many people assume but are also fairly uniform.

For example, as you can see in the table below, most insurers pay more than 90% of all claims they receive.

Insurer

2017

2018

2019

Aegon

92.1%

93%

100%

Zurich

87%

95%

98%

Vitality

96%

97.8%

96.4%

Shepherds Friendly

96%

95.8%

96.3%

Cirencester Friendly

94.7%

95.2%

95.7%

Holloway Friendly

96%

98%

94%

British Friendly

92.4%

94.7%

94%

Liverpool Victoria

96%

95%

93%

The Exeter

91%

93%

91%

Aviva

88.8%

86.3%

85.7%

Legal & General

95%

95%

82%

Payout statistics alone should not be used to decide which insurer offers the best Income Protection.

Instead, payout rates should be used as a rough guide to compare successful claims across the industry as a whole.

Compare 12 Best UK Self Employed Income Protection Insurance Providers 2021

As an independent insurance broker we compare all of the top UK insurers for our self employed clients. Where we all have different jobs, varying medical history and lifestyle choices the best insurer truly does depend on your personal circumstances.

That’s because each insurer is different and prefers different risks. For example, some are more competitive for higher-risk / manual occupations, while others are better if you want a longer deferred period.

Below is a list of the top UK insurers we work with, each linking through to our expert review of their own individual products. We have also created a really useful guide comparing the terms of all the top UK income protection insurers.

Be aware that it’s not always the cheapest plan that’s the best — policies and providers vary considerably. One might offer a great deal more coverage than the other, so it pays to shop around.

We compare all the leading UK insurers for our clients to make sure they are getting the most cost-effective cover for their personal circumstances.

Top Additional Benefits & Support Services

Another important area of comparison is the additional benefits on offer from various Income Protection insurers. These are services available, almost always for free, alongside the core accident and sickness insurance.

Insurers have designed many such benefits with overall wellness in mind. You can therefore use them to reduce the chances of you needing to claim or to help speed up your recovery if you are ill.

Additional benefits may include:

  • 24/7 Virtual GP service
  • Prescription service
  • Medical helplines, offering convenient telephone access to trained doctors and nurses for advice on minor medical ailments
  • A fixed number of physiotherapy sessions per year (either online or in person)
  • A fixed number of counselling / cognitive behavioural therapy sessions per year (either online or in person)
  • High street discounts
  • Discounts on gym memberships / fitness trackers
  • Hospitalisation benefit, paying out a cash benefit each day you spend as an inpatient in hospital
  • Small death benefit which pays out like Life Insurance
  • Second medical opinion service, providing access to world-leading medical experts to offer a second opinion on a diagnosis or course of treatment.

Many such services are available to not only you as the income protection insurance policyholder but also your immediate family, such as your spouse / civil partner or dependent children.

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Common Income Protection Questions...

  • Are Self Employed Eligible For Income Protection?

    So long as you are registered with a GP in the UK and you pay UK income tax you are eligible for self employed cover.

    Some insurers require you to have a up to 12 months of self employed earnings to justify the level of cover you require.

    If you are new to self-employment it is best you speak to an expert adviser to ensure your cover is set-up correctly from the outset. Pop us a call on 02084327333 or email help@drewberry.co.uk.

  • Is Income Protection Tax Deductible?

    For a soletrader, income protection is paid from net income so any clam is paid out tax-free.

    For contractors or company directors working through a limited company there are some options available where premiums are tax-deductible.

  • Is Self Employed Income Protection Worth It?

    With limited government support and a chronic shortage in personal savings among the UK’s self employed, an income protection policy could well be one of the most important forms of personal protection.

    It is the one policy that will cover all your other financial outgoings should you be unable to work due to any illness or injury.

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Other Types Of Self Employed Insurance

The self-employed have a range of insurance policies to consider to protect themselves alongside Accident and Sickness Cover. These include:

  • Personal Accident Insurance
    Pays out a cash lump sum if you have a specific accident which results in death, broken bone, loss of limb or hospitalisation. It is not something we recommend given how comprehensive Income Protection is in comparison. Read more in our Beware of Personal Accident Insurance! guide here.
  • Private Medical Insurance
    Health insurance is designed to step in to pay the bills for treatment of acute medical conditions in private medical facilities, meaning you are able to bypass NHS waiting lists and get back on your feet and back to earning faster.
  • Life Insurance
    Life Insurance pays out a lump sum on your death to help support your loved ones financially through what would be a very difficult time.
  • Critical Illness Insurance
    Pays out a tax-free lump sum if you become critically ill (e.g. with cancer, heart attack, stroke, multiple sclerosis, Parkinson’s etc.).
  • Public Liability Insurance
    Public Liability Insurance protects both your company and you as the owner of the business from legal ramifications should anyone suffer property damage or personal injury resulting from your company’s activities.
  • Professional Indemnity Insurance
    Covers legal costs and damages that might arise if a client takes action against you for a mistake you or your business has made. It’s a legal requirement for certain professions, such as doctors, solicitors, accountants, business consultants, financial advisers etc.
  • Employers’ Liability Insurance
    If you employ staff, then you’re required by law to have Employers’ Liability Insurance to protect your employees and cover any compensation claims related to illnesses and injuries sustained by employees during working hours.

Compare Sickness Insurance Quotes & Get Expert Advice

With fluctuations in earnings and often a broad range of work duties, it can be a bit of a minefield for self employed workers to set up income protection insurance.

That’s why we’re here to make sure you have all the information you need to make an informed decision and arrange the most suitable protection for your needs.

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.

For help and fee-free income protection advice, pop us a call on 02084327333 or email help@drewberry.co.uk.

Very helpful from start to finish. Talked through all the points and gave great advice.

Darren Comer
16/05/2021
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