How To Protect Your Income If You Are Self-Employed

Written by Jane Wardle on February 27, 2019

Updated February 13, 2022


Running your own business is rewarding, especially when business is going well, and things are running smoothly. However, being self-employed does mean that you don’t have the same protection and security as those in an employed position.

If you find yourself in a situation where you can no longer work, it can affect your business as well as your income and could result in you struggling to cover your day to day expenses. If you are already self-employed or considering starting your own business, then it is vital that you think about what options you have to protect yourself and your income should something happen that means you can no longer work.

Read on to find out how to protect your income if you’re self-employed, and some tips to help you choose the best options for you.

What income protection options are there for the self-employed?

When you work for yourself, you won’t have the benefits that often come with employment, such as sickness cover and health insurance. It is possible that you will qualify for benefits and help from the government if you cannot work because of injury or illness, but this may not be enough to sustain your lifestyle.

There are various insurance options available to self-employed individuals looking to protect their income, and it is important to understand all the choices before deciding which is right for you. Income protection insurance, life insurance and critical illness cover are all popular options for protecting self-employed income.

If you are self-employed then you will not qualify for statutory sick pay, or redundancy pay if you find yourself out of work. Income protection insurance can provide cover for self-employed individuals who can no longer earn a living.

What is self-employed income protection?

Self-employed income protection is a long-term insurance policy that is designed to support you if you can no longer work because of illness or injury. You will pay a monthly premium for the insurance, and then should you be unable to work you can claim on the policy to pay out.

The payout is designed to replace all or part of your usual income after tax and depending on the policy it can pay out up to your normal retirement age until you can return to work, or for a fixed term such as two years.

When you are self-employed, your income might not be consistent every single year, which can make arranging income protection insurance a challenge. As you look for quotes for self-employed income protection you will need to choose:

  • How long you want to be covered: A lot of policies will ensure you until you reach a certain age, and this age can vary depending on the self-employed income protection provider you choose.
  • What income you want covered: Most self-employed income protection providers will offer you either a fixed amount or a percentage of your annual income. Some providers might put a cap on the amount you will get each month or year.

When you apply for income protection insurance when you are self-employed, it is likely that you will be asked for at least one year’s audited accounts. This is used as a proof of income for your insurer.

What other insurance can protect self-employed income?

As well as self-employed income protection insurance, there are some other insurance products that are beneficial for protecting those who are self-employed and their families. If you are self-employed then you should also consider these insurance options:

  • Critical Illness Cover: This type of insurance is a long-term policy that will pay out a tax-free lump sum if you get diagnosed with a serious illness that is covered by the policy. Illnesses that are covered usually include heart attacks, strokes and cancers, but this list will vary between policies and providers. Critical illness cover is designed to help you pay off debts and manage your finances if you can no longer work.
  • Life Insurance: A lot of employers offer a form of life assurance within their employment packages, but if you are self-employed then your family may not receive any financial help in the event of your death. Life insurance for self employed will pay out a lump sum to your dependents after you die, which can help them to pay off your debts such as a mortgage. There are various options available for life insurance, so it is important you properly research to decide which one is right for you and your family.

If you were employed and had an insurance policy then you might be able to continue with this insurance policy when you go self-employed, you will just need to inform your provider of your change in circumstances which might change your premiums.

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