Every year around one million people in the UK suffer a serious injury or illness that leaves them unable to work. Income protection insurance is designed to provide a financial ‘safety net’ in such times, providing a monthly pay out so you can cover your bills and other expenses while off work for an extended period.

This is of particular importance to self-employed workers and freelancers who do not have access to sick pay and other related employee benefits. If something were to happen to you which left you unable to work and earn, would you be able to survive just on your savings?

If the answer is no, then you may want to consider income protection insurance.

income protection for self employed

What is income protection insurance?

Sometimes referred to as ‘permanent health insurance’, income protection insurance is a long term policy that is designed to help you financially if you are unable to work due to an illness or injury. It is becoming increasingly popular with self-employed workers, as they do not receive ‘employee’ benefits such as holiday pay or sick pay.

Income protection insurance can provide self-employed workers with a regular income until they are able to return to work.

Income protection insurance:

Replaces part of your income – providing financial assistance is you are unable to work due to illness or injury

Pays out until you are able to work again – or until you retire, die, or come to the end of your policy term, which is sooner

Includes a waiting or ‘deferred’ period before the payments start – the longer you can wait before receiving payments (typically around 4 weeks) the lower your premiums will be

Covers most illnesses that can leave you unable to work – depending on the policy and level of cover you choose

You can claim as many times as you need to – as long as the policy is still active and you keep up with monthly premiums

Without income protection insurance, self-employed workers would have to rely on Employment and Support Allowance from the government to pay the bills – which is currently capped at £74.35 for those aged over 25. (Source:  https://www.gov.uk/employment-support-allowance/what-youll-get)

Income protection insurance for the self-employed

Create Insurance have partnered with Vitality to offer income protection and life insurance for freelancers and the self-employed

The different types of income protection insurance

There are three main types of income protection insurance: Accident and Sickness only, Unemployment only, and Accident, Sickness & Unemployment (ASU).

Accident and Sickness only

This type of policy covers you if you are unable to work due to an accident or an illness, and is often referred to as ‘self-employed sick pay cover’ as it provides the self-employed with similar benefits to employee’s sick pay.

Accident and Sickness only polices tend to only be short term solutions, with pay outs typically lasting around 12 months.

Unemployment only

This form of cover is more geared towards employees, as it can pay out a monthly income if they become unemployed or are made redundant through no fault of their own.

Accident, Sickness and Unemployment (ASU)

As the name suggests, this combines the above two into one income protection policy that provides maximum cover. As the ‘Unemployment’ part of these policies is not relevant to the self-employed, it is best to avoid these as you will only be paying for cover you do not need.

Self-employed worker

Income protection insurance policy features

If you are new to the idea of income protection, the different types of policies and features/benefits available may seem complicated at first. Below we’ve listed some of the main features you need to consider when choosing a policy.

Level of cover

You can usually choose from three main levels of cover with income protection insurance, which can pay out based on your particular situation:

  • Own occupation: you are unable to carry on your own occupation.
  • Suited occupation: you are unable to do your own job, or a similar one that suits your qualifications and experience.
  • Any occupation: you are unable to do any kind of work.

For example, if you are a photographer that travels a lot to shoot on-site, any condition that prevented you from doing that would be covered under an ‘own occupation’ plan. However, if you have an ‘any occupation’ plan, your insurer may not pay out if your injury wasn’t too serious as you would still be able to carry out some forms of work.

In most cases, ‘any occupation’ cover tends to be the cheapest – however, it is important you consider the limitations and whether you would be better off with a higher level of cover to make sure you are eligible to claim should the time come.

Length of pay out

Income protection policies only pay out for a maximum stated duration. The maximum length of time you can choose for the policy to end is when you are set to reach retirement age, so it will continue to pay out and provide you with an income if you are unable to ever work again. You can also choose for it to pay out for the current length of your mortgage, or until your children finish full-time education.

The longer the pay out period you choose, the more expensive the premiums will be – so make sure you carefully consider how long you might need to continue receiving payments.

There are policies that pay out for a fixed period, such as 12 months or 36 months, which are less expensive and can provide cover for short-term illnesses and injuries.

Pay out amount

As well as the length of the pay out, you also want to consider how much you receive each month. The lower the pay out you receive, the lower your premiums, so think about what outgoings you definitely need to cover and which ones you can do without in order to keep the cost down.

How much does income protection insurance cost?

The cost of your monthly premiums will depend on a variety of factors, including:

  • Age
  • The pay out amount
  • How long you want the cover to be in place
  • Whether you smoke or have previously smoked
  • Job – the more manual or specialist the higher the premiums
  • Health (your current health, your weight, your family medical history)
  • The definition of disability – own occupation, suited occupation or any occupation
  • The excess waiting period before you’re paid (the ‘deferred period’)

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