Guide to Self Employed Insurance

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8 mins

Self-employed insurance covers a wide range of protection products and needs. As a self-employed worker, insurance can be an essential lifeline to protect you when things go wrong given that you have very little in the way of a buffer between you and any unfortunate circumstance which could leave you unable to work.

While employed people benefit from sick pay, employee benefits and other insurances paid for by their employer, this isn’t the case if you’re self employed.

Income Protection

Income Protection for the Self Employed

Self Employed Income Protection acts as a form of sick pay, compensating for what you don’t receive from an employer. It will pay you a monthly income if you can’t work due to accident or sickness.

self-employed Health Insurance

Private Health Insurance

Private Health Insurance pays the bills from a private medical facility, allowing you to receive top-notch care for eligible conditions and skip NHS waiting lists.

Life Insurance

Life Insurance

Life Insurance is often provided as an employee benefit to employed workers but this isn’t something you’ll get when you go it alone. It pays out a lump sum on death to financially support your loved ones after you’re gone.

Mortgage insurance

Mortgage Insurance

Self employed workers often find it harder to get a mortgage in the first place due to their employment history; it therefore makes sense to secure the loan with either Mortgage Life Insurance to protect against death or Mortgage Payment Protection in case you can’t work.

critical illness insurance

Critical Illness Insurance

Critical Illness Cover pays out a tax-free lump sum if you develop a critical illness. This can be used to cover any medical expenses, replace lost income or make adaptations to your home following a disability.

Types of Self Employed Insurance

  • Income Protection Insurance

    Income Protection for the self-employed is a vital protection for a section of the population that doesn’t get any sick pay and would have to rely on minimal state benefits (e.g. Employment and Support Allowance at £90.50 per week) or savings to get by without their income.

    Given that many people simply don’t have sufficient savings or couldn’t survive on the government benefits that are available if they couldn’t work as a result of accident or sickness, Income Protection can step in and provide a vital lifeline in the form of a regular monthly income.

    The best policies will pay out a monthly income if you can’t do your specific job and will provide you with that income long-term, right up until your retirement age if you’re so unwell you can never work again.

    Given many self employed workers are employed in manual occupations, they’re at particular risk of injury or illness through work and so are arguably more in need of sick pay cover than an employed worker, yet the self employed simply don’t receive this protection.

    You can cover between 50% and 70% of your profit before tax, depending on the insurer. Many people make the error of covering a percentage of their revenue rather than profit and over-insure as a result — avoid falling into this trap by speaking with an expert adviser and discussing your income with them before taking out a policy.

    Can the Self Employed Get Income Protection?

    Yes, self-employed workers can get Income Protection Insurance just like employed workers.

    This is good news because self employed workers are vulnerable, not getting the same sick pay or other protections that employed workers have.

    Self-employed Adrian has been a gas fitter for over 20 years. He specialises in bespoke fireplaces and currently runs Gas Tech, a Leeds-based gas fitting and engineering company that works throughout Yorkshire.

    “You start to realise that as you get older, the risk of getting injured goes up,” says Adrian. “So I thought it was time I protected my income to ensure all of my outgoings would be covered if I couldn’t work.”

    Ben is a self-employed bricklayer in his 20s. Despite being a young man, he’s already taken steps to protect his income in case he can’t work.

    “After a year or so, I realised that my earnings were vulnerable if I was sick or got in an accident,” says Ben. “So I started to look around for some insurance that could provide the kind of protection I needed.”

  • Private Health Insurance

    Private Health Insurance can help you avoid NHS waiting lists as you’ll benefit from fast-tracked consultations in private facilities overseen by private medical practitioners.

    Health Insurance speeds up your diagnosis, treatment and care compared to what’s available on the NHS. You also receive the benefit of treatments, such as so-called ‘super drugs’ for cancer, that the NHS may not always fund due to cost.

    This will take place in a private facility with superior amenities than the NHS can offer, such as the ability to recuperate in your own ensuite room while enjoying round-the-clock visiting hours.

    Do the Self Employed Need Health Insurance?

    Many people working for themselves simply can’t afford to wait 18 weeks for an inpatient operation, especially if the condition is painful and preventing them from working, such as might be the case if you need a joint replacement, for example.

    If you don’t get any sick pay and you’re out of work with a debilitating medical condition waiting for treatment, a long NHS waiting list is the last thing you want to face.

    Private Health Insurance will offer you care exactly when you need it the most, potentially allowing you to get back to work and earning again much faster.

  • Life Insurance

    The most common form of Life Insurance is known as Term Insurance. Here you pay premiums each month and, if you die within a set term, your loved ones receive a lump sum payout that they can use to make up for any gaps in their finances your loss may create.

    Whether it’s paying off a mortgage, providing cash for everyday living or meeting any other expenses, Life Insurance is there should you need it.

    Term Insurance can either be Level Term Insurance, where the benefit remains fixed over the life of the policy, or Decreasing Term Insurance, where the benefit falls over the policy’s term, usually in line with a repayment mortgage.

    Company Director? The Tax-Efficient Life Insurance Through Your Business…

    If you’re a company director rather than a sole trader, meaning you operate through a limited company structure, you have the option to take out a tax-efficient Life Insurance through your business that could offer significant savings in tax and National Insurance over paying for a policy personally — up to around 50%.

    This is known as Relevant Life Insurance and is a HMRC-approved policy that many company directors use to cover themselves and their families via the business.

    Relevant Life Insurance needs to be set up correctly to ensure it retains its tax-efficient status and is correctly written into trust so that the payout remains separate from the business should you need to make a claim. For help and advice, don’t hesitate to pop one of Drewberry’s experts a call today on 02084327334.

    Do Self-Employed Workers Need Life Insurance?

    One of the most common employee benefits offered to employed workers is Group Life Insurance. This is because it’s among the cheapest employee benefits to offer and one of the easiest to understand.

    Group Life Insurance offers workers a multiple of their salary if they pass away while in employment with the organisation that owns and pays for the policy. It’s a popular benefit with workers as it provides free insurance for their families should the worst happen.

    However, not having an employer, self-employed workers don’t get employee benefits and it’s up to them to provide their own Life Insurance and similar benefits.

    This usually takes the form of personal Life Insurance or, if you’re a company director, Relevant Life Insurance to make your own provisions.

    Think to yourself: How would your loved ones cope if you were to pass away? Could they keep up with the mortgage / rent, pay the other bills and continue to survive financially without your income?

  • Mortgage Protection Insurance

    Mortgage Protection Insurance is made up of two separate products with two different aims.

    Mortgage Life Insurance

    Mortgage Life Insurance is a type of Life Insurance that will cover the cost of your mortgage debt.

    This will mean your loved ones don’t have to worry about having to keep up mortgage payments if you were to pass away because they’ll be able to clear the mortgage with the lump sum they’ll receive on your death.

    You can add Critical Illness Cover to Mortgage Life Insurance so you’ll receive a payout should you be diagnosed with one of the critical illnesses at the severity set out in your policy documents.

    Mortgage Payment Protection

    Mortgage Payment Protection Insurance (MPPI) will protect your monthly mortgage payments over the short term (for a maximum of 12, 18 or 24 months, depending on your policy).

    If you aren’t earning, this insurance will cover the cost of your monthly mortgage payments by paying out on a monthly basis until you can return to work or the payment period ends, whichever is sooner.

    Do Self Employed Workers Require Mortgage Insurance?

    Without Mortgage Insurance, ask yourself how you or your family would cope if you could no longer earn and make monthly repayments, say because you’re ill, unemployed or even sadly have passed away.

    Would you / your family be able to keep up with mortgage repayments or would there be a financial struggle resulting in the loss of your home?

  • Critical Illness Cover

    Critical Illness Cover pays out a tax-free lump sum should you suffer from a serious illness or injury during the policy’s term.

    Every insurer that provides Critical Illness Cover will have their own list of critical conditions that are covered by the policy. This can range anywhere from fewer than 10 conditions to over 100 depending on the insurer.

    Some Critical Illness policies also offer ‘partial payments’ when you contract a less serious condition, leaving the remainder of cover in place. However, if your condition doesn’t meet the severity criteria, such as early stage cancer or a ‘minor’ heart attack, then you may not receive a payout at all.

    Critical Illness Cover can also be purchased combined with Life Insurance.

    Do I Need Critical Illness Cover?

    If you are diagnosed with a critical illness, the lump sum provided by Critical Illness Cover can be used to keep up with your expenses to protect yourself and your loved ones.

    You can choose the size of your payout when you purchase Critical Illness Insurance. Often, cover is aligned with your mortgage to allow you to repay the debt if you were to fall critically ill.

    Critical illnesses are often life changing. If you are left paralysed by a stroke or are diagnosed with cancer, a lot of costs may be involved to organise care and treatment; you might also need to take a a great deal of time off work to recover.

    The payout from a Critical Illness Insurance policy can help you cover vital expenses during a difficult time, whether this is by helping you adapt your home to meet the needs of a new disability or paying for private medical and caring requirements.

    • One of the most common reasons behind Critical Illness claims is heart attacks. There are an estimated 1.4 million heart attack survivors in the UK — British Heart Foundation.
    • Around one out of two people born after 1960 will develop cancer during their lifetime — Cancer Research UK.

    Not every incidence of cancer or heart attack will be covered by Critical Illness Insurance. Minor incidences may not trigger a payout — it all depends on your policy wording, so check carefully or consult an adviser.

    Don’t Forget Income Protection…

    Critical Illness Cover has its place, but a lump sum payout may not be the best way to cover day-to-day expenses if your illness prevents you from working.

    Instead, Income Protection could be the better choice because you’ll receive monthly payments for as long as you need rather than being given a one-off lump sum that could have to stretch a very long way if you can never work again.

  • Personal Accident Insurance

    While many people have heard of Personal Accident Insurance, there tends to be some confusion about what exactly it is and what it does.

    To set the record straight, Personal Accident Insurance covers injuries you receive as a result of an accident. Just what is covered depends on the policy you buy — some policies will cover minor injuries that don’t necessarily prevent you from working, while others require you to be signed off work with the injury to claim.

    To give you an idea of the variability of these policies, some cover fractures, while others do not. Certain policies will only cover you if you’re permanently unable to work; meanwhile, others will pay out for loss of earnings due to temporary incapacity.

    While all of this may sound similar to Income Protection Insurance, the major difference is that Personal Accident Insurance offers a one-time, lump sum benefit. This is compared to an ongoing supportive income with Income Protection, potentially right up to retirement if you opt for a long-term policy.

    There is a lot of ambiguity about Personal Accident Insurance. You really need to get deep into the small print of the policy to figure out what you’ll be covered for and whether you’ll be able to make a claim when needed.

    Moreover, Personal Accident Insurance benefits are typically capped at an amount between £5,000 and £20,000. While this might seem like a reasonable payout in theory, this probably won’t last you very long if you had no other source of income and need to be off work for months or even years to recover.

    Personal Accident Insurance vs Income Protection

    There are a few key differences between Personal Accident Insurance and Income Protection that that generally tends to make Personal Accident Insurance a less appealing policy if you are looking to protect your income.

    Personal Accident Insurance

    Income Protection

    Typically uses Suited / Any Occupation definition of incapacity

    Own Occupation definition of incapacity is available

    Covers injuries resulting from accidents that prevent you from working

    As well as covering injuries, Income Protection will also cover illnesses, including mental health conditions

    Pays out a lump sum once

    Pays monthly benefits, with long-term cover allowing you to claim until you reach retirement if you can never work again

    Often you’ll find arbitrary exclusions on the policy, such as outright rejection of mental health or back pain claims

    The only exclusions on your policy will be in relation to any pre-existing conditions you have at the time you buy the cover

  • Public Liability Insurance

    Public Liability Insurance is there to protect both your company, and you as the owner of the business, should anyone suffer property damage or personal injury resulting from your company’s activities.

    This might include clients, suppliers or members of the public and can cover incidents such as a trip or fall on your premises or a member of the public’s vehicle getting damaged as a result of your business’ activities.

    Do I Need Public Liability Insurance?

    As a result of property damage or personal injury, you could be taken to court and sued. Accidents happen, especially if your business frequently interacts with others.

    This could lead to high defence costs and the need to pay for damages and the other side’s legal costs if you lose. Even arbitration / mediation, which avoids a court setting, can be costly, especially if you’re required to pay compensation at the end of it.

    This makes liability insurance an essential cornerstone of any self-employed insurance portfolio, even if it isn’t a legal requirement in the UK for most businesses (note that for some businesses, such as horse riding stables, you’ll need Public Liability Insurance in place as a condition of your trading).

    You could even lose business by not having it in place — some clients may want to see proof of adequate insurance before they’ll do business with you.

  • Professional Indemnity Insurance

    If you’re a self-employed individual who provides advice and services to your clients, you’re liable if that advice, whether through negligence or a simple mistake, causes your client a financial loss.

    Professional Indemnity Insurance is there to step in to cover any legal costs and damages that might arise if a client takes action against you for a mistake you or your business has made.

    Such mistakes could be anything, ranging from:

    • Giving bad advice
    • Delivering poor designs and professional services
    • Professional negligence
    • The loss of documents or data
    • Third-party financial losses
    • Defamation
    • Breach of copyright and / or confidentiality.

    Which Self Employed Workers Need Professional Indemnity Insurance?

    Self-employed professionals who typically need to consider Professional Indemnity Insurance include:

    • Doctors
    • Solicitors
    • Engineers
    • Architects
    • Journalists
    • Accountants
    • Business consultants
    • Financial advisers.

    For certain professions, Professional Indemnity Insurance is sometimes stipulated as a requirement by clients or industry bodies, so a policy could even help you obtain more work.

    If you don’t have Professional Indemnity Insurance in place, you could be on the hook for significant sums of financial damages owed to a client as a result of court proceedings against you, so it makes sense to ensure you’re covered adequately.

  • Employers' Liability Insurance

    All companies employing staff are required to have Employer’s Liability Insurance in place — it’s a legal requirement.

    It’s designed to protect you from any compensation claims related to illnesses and injuries sustained by employees during working hours. Employer’s Liability Insurance covers these expenses for you so you don’t have to pay out from the company, alleviating the pressure this would put on your business.

    Why Self Employed Workers Need Employer’s Liability Insurance

    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.

When to Review Your Self Employed Insurance

Most importantly, the obvious time to review your insurance as a sole trader is when you become self-employed in the first place.

Starting out on your own is an exciting time, but you lose any protection you would have had from your previous employer, such as sick pay. For this reason, a policy such as Income Protection, which can provide the sick pay for the self-employed that you’re missing out on, can be a crucial part of being a sole trader.

If you leave employment to start your own business, you might be missing out on employee benefits, such as Group Life Insurance, that would have helped provide for your family should the worst happen and you. It’s here a personal Life Insurance policy can step in to provide the same cover.

Also when starting your business, you’ll want to consider any insurances that are necessary for you to function as a sole trader. This might include Professional Indemnity Insurance, Public Liability Insurance or Employer’s Liability Insurance.

Major Life Events Requiring an Insurance Review

Once you’ve sorted out the insurance you need, you should regularly review and update the policies when there are changes in your life to ensure your cover remains right for your current circumstances.

Certain events in life should be followed by a review of your personal insurance policy, such as:

  • Getting married / moving in together
  • Starting / increasing your family
  • Buying a property / getting a mortgage
  • Moving to a higher value property with a larger mortgage
  • If your annual income rises or falls in line with business operations

Fortunately, many protection policies have a guaranteed insurability option, which permits you to increase the amount of cover you have if you reach a major milestone in your life without submitting further medical evidence.

These typically include getting married, having children, moving house / increasing your mortgage and getting a pay rise / promotion.

Common Self Employed Insurance Questions...

  • Do you need Insurance if you're self employed?

    Whether or not you’ll need insurance as a self employed individual depends on your circumstances and the nature of the business you’re undertaking.

    Certain insurances are legal requirements, such as Employer’s Liability Insurance if you hire staff beyond close relatives of you, the company director. This will pay out if anyone working for you is injured on the job and has a minimum legally mandated payout of £5 million.

    If you run a horse riding stables, for example, then Public Liability Insurance becomes a legal necessity. However, for most self employed people Public Liability Insurance isn’t a legal requirement, although it’s good practise to have in place if you regularly interact with members of the public, such as if you run a shop.

    Professional Indemnity Insurance is usually mandated as a requirement by certain regulatory bodies, such as those covering accountants, solicitors, architects and other providers of professional services.

    Do I Need Personal Insurance if I’m Self-Employed?

    Personal insurance for the self-employed is a different matter. While Life Insurance or Income Protection Insurance aren’t legal requirements, you’ve got to consider what would happen to yourself and / or your family should the worst happen and you pass away or become too ill to work.

    Without sick pay or savings, many self employed workers would struggle if they were suddenly out of work due to accident, sickness or even death.

  • Can you get Income Protection if you're self employed?

    Yes, it’s possible to get Income Protection as a self-employed worker.

    In fact, certain insurers even cater to self employed workers, building Income Protection policies around shorter deferral periods to take into account a lack of sick pay, for example and having a charing structure specifically for those in manual occupations.

  • Can I get Unemployment Insurance if I'm self employed?

    While some providers will certainly sell you Unemployment Insurance as a self-employed worker, it’s not something we tend to recommend at Drewberry.

    This is because it can be very difficult to claim on an Unemployment Insurance policy when you’re self-employed, so you risk having paid premiums for no payout when you need the policy to kick in.

    Self employed individuals rarely meet the definition of ‘unemployed’ as stipulated by an Unemployment Insurance policy because, even if you have no work coming in or lose a contract, you’re still technically employed by yourself.

  • Why do I need Public Liability Insurance?

    Do I Need Public Liability Insurance if I’m a Sole Trader?

    Whether or not you need Public Liability Insurance depends on the nature of your business. If you work solely from home, never meet clients in person, or at least never have clients come to your premises, it might not be necessary to take out this cover.

    However, the minute you begin interacting regularly with clients on your business premises, you start to build up a risk that someone might get injured and it be deemed your fault. For this reason, you may want to start to consider Public Liability Insurance to protect yourself.

    Is it a Legal Requirement to Have Public Liability Insurance?

    For places such as horse riding stables, where there’s a larger risk to the public through activities taking place than in most other workplaces, Public Liability Insurance is a legal requirement.

    While it’s not a legal requirement in many other cases, it may be something that a client wishes to see you have in place before doing business with you, so it makes sense to at least consider this protection if you’re self employed.

Compare Self Employed Insurance Quotes & Get Expert Advice

Finding the right Self Employed Insurance product is only the first step to getting your protection put in place. Not all policies are made equal and different insurers will make different offers.

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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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