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Self-employed income protection

Donna McConnell
Written by  Donna McConnell
5 min read
Updated: 28 May 2024

Self-employed income protection can help if illness or injury prevent you from working. Our guide covers everything you need to know.

Female business owner at laptop

What is self-employed income protection?

Income protection is a type of insurance that provides you with a regular income if you’re unable to work due to illness or injury. You can choose between short-term or long-term policies.

It’s designed to help cover your living expenses and keep your business running when you can't work for the length of policy you select.

How does self-employed income protection work?

If you’re unable to work due to illness or injury, self-employed income protection pays you a monthly benefit. This payout typically starts after a waiting period - the deferred period you choose when you set up the policy.

Depending on the details of your policy, the payments continue until you can return to work or until the end of the policy term.

Who should consider income protection?

  • Business owners

  • Self-employed and you have no sick pay to fall back - you may be able to claim Employment and Support Allowance to help if you have health issues that prevent you from being able to work

  • Employees who don't have other sources of income or substantial savings

Income protection is useful for anyone who relies on their earnings to pay their living costs or business expenses.

How much does income protection cost?

Income protection policies are designed to cover a wide range of illnesses, conditions and situations. And the cost will vary over time, depending on the type of premiums your policy has - whether they're fixed, reviewable, or increase based on your age.

The amount you pay each month will depend on the policy you opt for and your circumstances. Generally, the higher the risk and the more comprehensive the cover, the more expensive the premium.

What factors affect the cost of income protection?

The following will initially affect the cost of your income protection policy:

  • your age

  • your salary

  • occupation

  • level of cover needed

  • your deferred period - the waiting period before payments start

  • the payout term

How much of my income can I cover?

You can typically cover up to 65% of your gross income with self-employed income protection, according to MoneyHelper. This ensures that you have enough money to cover your essential expenses.

What are the typical exclusions in an income protection policy?

Each policy is different, so it's important to read the terms and conditions carefully. But most insurers will exclude:

  • pre-existing medical conditions

  • self-inflicted injuries, and illnesses or injuries resulting from illegal activities

How long will the policy pay out if I'm unable to work?

Your policy will make regular payments in line with the benefit period you choose when you take out cover. This could be for a fixed term, such as one or two years, until you can start working again, or until you reach a certain age, like 65, or you die.

How do I make a claim on my self-employed income protection policy?

To make a claim, you typically need to provide evidence of your inability to work, such as a doctor's certificate or medical records. You’ll then contact your insurer and fill out the necessary claim forms. The insurer will review your claim and, if approved, begin making payments according to your policy terms.

Are the benefits from a self-employed income protection policy taxed?

The benefits from a self-employed income protection policy for an individual are generally tax-free.

How does income protection differ from critical illness cover?

Self-employed income protection provides ongoing monthly payments if you're unable to work due to illness or injury, whereas critical illness cover pays out a tax-free lump sum if you're diagnosed with an illness that's specified in your policy.

What other factors should I consider?

It's important to read the small print when comparing policies, and to;

  • consider the waiting period before payments start

  • the length of the benefit period

  • the level of cover

  • any exclusions

  • the cost of premiums

What other insurance policies should self-employed people consider?

In addition to income protection, self-employed people might consider;

These can help protect you and your business from various risks and ensure you have access to necessary medical care.

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