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Working as a freelancer and going out on your own can be an exciting time, but it comes with lots of things to consider.
One of the major considerations is the insurance freelancers need as part of operating their business.
These range from liability insurances to protect the business and anyone working for it to more personal insurance needs for you as the freelancer, such as Income Protection to cover your income should you be unable to work through illness or injury.
Some freelancer insurance is compulsory, such as Employers’ Liability Insurance if you employ anyone other than a close family member of the business’ director. Others are highly recommended to protect both yourself and the business, such as Professional Indemnity Insurance or Income Protection.
This guide provides an overview of the different types of freelancer insurance available to help you make your mind up about which protection is right for you as a freelancer.
As a freelancer, it’s unlikely you’ll get any sick pay. That’s where Freelancer Income Protection can step in to pay out a monthly income to replace lost earnings (which can include both salary and dividends) if you suffer an illness or injury that prevents you from working.
Those freelancing through their own limited company have the option to take out a tax-efficient Life Insurance that can be owned and paid for by the business. Known as Relevant Life Insurance, it’s a cost-effective way to provide your loved ones with financial security.
Health Insurance provides you with access to private medical care in the UK. It allows you to bypass long NHS waiting lists and receive treatment quickly in top-notch facilities supervised by private medical practitioners. Freelancers can pay for the cover through their limited company.
Public Liability Insurance protects your business if you need to pay compensation for injury or damages to another person or their belongings that is incurred as part of your daily work activities or on your work premises. If you are at fault your insurance policy will cover you if they decide to claim compensation.
Professional Indemnity Insurance protects you and your business if a client or customer asks for compensation for failure to deliver a promised service or product. It can also cover the cost of any damages incurred as a result of the products and / or services you offer.
If you hire employees, you’ll need to take out Employers’ Liability Insurance, a legal requirement for almost all businesses employing staff. It protects you against the cost of compensation claims arising from employee illness or injury sustained as a result of their work for you.
Income Protection is designed to pay out a monthly income if you’re unable to work and earn due to accident or sickness. The payout kicks in after a set deferral period, which is decided at the outset of the policy.
The income from a policy can be paid long-term, meaning you’d receive monthly payouts all the way up to retirement if you were so ill you could never work again. Alternatively, you can get short-term Income Protection that only pays out for 1, 2 or 5 years per claim.
You can protect a proportion of your pre-tax earnings from your freelance work (i.e. what you pay yourself in the way of salary and dividends). With personal policies paid for out of your own pocket, you can protect up to 70% of gross income.
If you opt for a corporate policy that’s owned and paid for by the business, however, you can protect a higher percentage of your income (up to 80%) to reflect the tax situation in the event of a claim on such policies.
With freelancers relying on being able to work to generate profit and therefore income, it’s essential that you consider what would happen if you were too ill to work.
Retained profit in the business, savings and government benefits can all help tide you over, but these aren’t inexhaustible supplies of cash. Savings and retained profit in the business would dwindle quite quickly if you were off sick for any length of time, while government benefits aren’t as generous as you may think.
The right policy can support freelancers with monthly income for as long as you need it and pay out enough to cover all of your essential expenditure.
Freelancer Income Protection is an incredibly valuable insurance. It protects you against accident and sickness and, unlike Critical Illness Insurance, providers will cover nearly any health condition that prevents you from working rather than covering a predetermined list of conditions.
When finding the right insurance product to protect your income, we would normally advise that freelancers and self-employed professionals steer clear of Unemployment Insurance.
This is because there are few opportunities to claim Unemployment Insurance as a freelancer.
In order to claim on an Unemployment Insurance policy, you will need to meet the following requirements:
While these requirements on their own are highly specific and difficult to fulfil in most circumstances, they can be even more difficult to meet if you are a freelancer.
This is because most policy providers may consider you to be still employed by yourself even if you are not technically working due to loss of contract etc.
As your own employer, you get decide when you can and cannot work, which makes it difficult to prove that you didn’t leave work voluntarily, making the possibility of a successful claim a difficult grey area.
Life Insurance is an insurance policy that pays out a lump sum should you die within the policy’s term.
You select how much cover you need from the outset and also how many years you want the plan to run / the age at which you want the policy to end.
Personal Life Insurance is paid for out of your own individual bank account, but if you’re a freelancer or contracting through your own limited company you have another option: Relevant Life Insurance.
This is paid for by your company and because the premiums come out of the business, the premiums are eligible for various tax reliefs that can mean a significant saving on cover compared to paying for it personally – potentially up to 49% over a personal plan.
Relevant Life Insurance protects a multiple of your salary and dividend drawdown – it’s typically possible to insure up to 25 times your total remuneration.
The payout is paid into a specially-drafted trust that is set up at the time the policy goes live, avoiding inheritance tax and probate, so your loved ones will get the benefit faster. Your adviser will be able to help you with the trust setup process.
Life Insurance isn’t essential, but if you have loved ones that may be placed in financial difficulty if you were not there to support them it can bring great peace of mind.
One of the most common employee benefit insurances is Death in Service Insurance (also known as Group Life Insurance). This is paid for by the company on behalf of its workers and covers multiple employees under a single policy.
However, if you leave an employed role and go freelance you lose all employee benefits and therefore any Life Insurance you may have enjoyed through the company. Relevant Life Insurance can be an incredibly cost-effective way to replace that.
This depends on your circumstances and also on whether you opt for a personal policy or a Relevant Life policy.
With a personal policy paid for out of your own bank account, it’s perfectly possible to add Critical Illness Insurance. This will pay out a lump sum if you are diagnosed with a critical illness that’s included in the policy’s terms and meets the definition laid out in said terms.
You can buy Life and Critical Illness Insurance combined into a single policy, which is usually the most cost-effective way to purchase such cover.
Adding Critical Illness Insurance to a personal Life Insurance policy may be an option for you, although depending on your circumstances an Income Protection policy might be a better option. This is because it will pay out for anything that medically prevents you from doing your job as opposed to only covering a specified list of ‘critical’ illnesses.
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It is important to discuss the difference between Income Protection and Critical Illness Insurance with your adviser to help determine which option might be right for you.
With Relevant Life Insurance, however, it’s not possible to add Critical Illness Insurance. This is because Relevant Life Insurance is a tax-efficient insurance recognised by HMRC – the same status is not afforded to Critical Illness Cover.
Critical Illness Insurance paid for through the business is not recognised by HMRC and so paying for a Critical Illness Insurance policy for your personal benefit through your limited company is not possible.
You may want to consider the above mentioned Executive Income Protection instead, which is an allowable business expense and approved by HMRC.
Freelancer Health Insurance pays for medical treatment in private facilities, allowing you to skip NHS waiting lists and receive treatment at a convenient time for you.
It also pays for medical treatments that may not be available on the NHS yet due to cost, with this particularly applying to expensive cancer medicines.
While Health Insurance is not an essential protection for freelancers, it can be of great help in getting you the treatment you need if an acute medical problem prevents you from working.
Freelancer Health Insurance is another protection that can be owned and paid for by your limited company, with the potential to receive tax relief on the premiums.
You’ll need to get a referral from your GP to begin treatment with Private Medical Insurance. From there, the care that you need is divided into inpatient treatment and outpatient treatment.
Inpatient treatment is all treatment that requires the overnight use of a hospital bed and is usually related to surgical procedures.
Outpatient treatment, meanwhile, does not require the use of a hospital bed. This usually refers to treatment such as diagnostic tests and scans, although other procedures can also be performed on an outpatient basis.
All Health Insurance covers inpatient care as standard. You have the option to add outpatient care – either covered in full or limited to a set monetary value each year (e.g. £1,000) – to a policy.
Adding outpatient cover increases how comprehensive the policy is, but does come at an additional cost.
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You’ll usually need some element of outpatient care – e.g. a scan – before being admitted for inpatient care. Not having outpatient cover means you’d need to wait for this on the NHS, so having outpatient cover can prove valuable.
Through the NHS is it can take weeks on a waiting list to receive treatment – this is time you could be working and earning. Without any freelancer sick pay, this could mean a halt to your income while you wait for treatment.
However, with Health Insurance you will be able to receive your treatments quickly through a private facility. If you are still able to work even while you aren’t well, Private Health Insurance has the added benefit of allowing you to organise your treatments around your schedule rather than having an appointment time allotted to you under the NHS.
Public Liability Insurance is designed to protect you and your business if in any case you are liable for damage or injury as a freelancer.
If a person is injured or has their property damaged either on your business’ premises or as the result of your actions, they may decide to make a claim against you.
In such a situation, your Public Liability Insurance would typically cover the cost of the claim, as well as potentially the cost of defending yourself against the claim.
Public Liability Insurance is not a compulsory insurance for freelancers, but it can be a saving grace if you find yourself in a difficult situation.
Even cases of minor injuries or damages where you are liable can result in considerable legal fees if the person decides to pursue compensation.
If your business is only small, costs of this size have the potential to completely cripple your company and your potential as a freelancer.
This said, Public Liability Insurance isn’t always necessary, especially if you’re based predominantly at home and receive little to no physical interaction with clients and no one visits your home in its capacity as a place of business.
Professional Indemnity Insurance is one of the most common protections freelancers will require. It protects you against the cost of claims as well as the legal costs if you are taken to court for causing your client professional and / or financial loss as a result of your services or advice.
Professional Indemnity Insurance is designed to help you if a service or product you have provided results in physical, reputational or financial harm being inflicted on the client.
Situations where Professional Indemnity Insurance may cover you include:
For some professionals, it is a regulatory requirement of their industry to have Professional Indemnity Insurance, a category that includes accountants and financial advisers, for instance.
For these types of freelancers, not having insurance can result in disciplinary action, but this is not the case for all freelancers.
Regardless of whether you are obligated to carry Professional Indemnity Insurance, it is wise to have it if you provide a service or product and do not have the financial resources to cover a court case and resulting successful claim.
Without it, it may be up to you to cover up to thousands of pounds worth of compensation and legal fees if a client decides to pursue a case.
Employers’ Liability Insurance is a legal requirement if you employ (and pay) any staff other than close relations to yourself as the company director.
It will cover your employees in case they are injured or become ill as a result of the daily operations of your business.
Your policy must cover you for at least £5 million as a legal requirement. However, most policies will typically protect you for £10 million as the industry standard.
The cost of a policy will be relative to the risk of your business represents to the insurer. For instance, a factory will likely be a more expensive premises to insure than a standard office.
With the various different options available for freelancer insurance, it can be difficult to know where to turn. Fortunately, the specialists at Drewberry are here to help.
When it comes to protecting yourself and your finances, you deserve first-class service. Here’s why you should talk to us:
Freelancers have specific insurance needs that must be met through careful planning, including with the insurance protections they require.
For help and advice in this area, don’t hesitate to get in touch with one of our specialists on 01273646484.
