Published by Joe Davine on
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Getting income protection insurance if you work for yourself

If you are self employed, then income protection insurance is definitely worth considering. As you won’t get the financial windfall of sick pay from work, unless you have sufficient savings to support you and your family then being unable to work for a long period could have a serious impact on your life.

Income protection insurance is designed to help you keep paying the bills, and any debts you have such as a mortgage, if you are unable to work due to illness or injury. We’ll take you through everything you need to know to help you decide if it’s right for you.

What is income protection insurance?

Income protection insurance is a form of life insurance that is also sometimes referred to as permanent health insurance (PHI). It is a policy designed to replace part of your income if you are unable to work due to illness or injury to support you until you recover and can start working again.

How does it work?

Just like with a life insurance policy, you pay monthly premiums while you are fit and healthy to guarantee your cover, but the payments the policy will make for a successful claim are based on a percentage of your salary. An income protection policy also pays out in monthly instalments rather than as a lump sum, unlike a standard life insurance policy.

What do I need to consider?

When it comes to self employed income protection insurance, there are two main areas to consider when taking out a policy.

  • The amount the policy will pay. Typically an income protection policy will pay you a tax-free income set around 50% of your gross monthly income, but they usually also have a limit on the maximum monthly or annual benefit. This means that a policy may provide 50% of your gross income up to a limit of £2,000 a month or £24,000 a year.
  • How long it will pay out for. You can find policies that will cover you indefinitely until you are able to return to work or reach retirement age, or those that will provide you with an income for a set period of time (usually around 12 or 24 months). Usually there will be a delay of about a month before the policy starts paying after a claim.

You want to find a policy that will pay enough each month for you to keep up with any bills or necessary payments while you are out of work.

How is it different from critical illness insurance?

Critical illness cover can usually only be bought in conjunction with a regular life insurance policy, and will pay out in a lump sum typically as a percentage of the value of your life insurance policy payout. This extra money can be very useful when an accident or critical illness strikes, but a critical illness policy won’t keep paying out each month to support you in the same way that an income protection policy will.

How much does income protection insurance cost?

There are a variety of factors that affect the premiums of an income protection policy. Typically you can expect monthly premiums to be somewhere in the region of £20-£50 for monthly cover up to around £1,750 (depending on your income), but exact rates will depend on your situation and the provider you choose.

All these factors will influence the cost of your monthly premiums:

  • Percentage of your income that is covered. Some policies can cover a larger portion of your income, up to around 70%, in exchange for higher premiums.
  • What you’re covered for. It is possible that a policy will increase in price if you want both sickness and accident cover.
  • Age. As with life insurance, income protection insurance for self employed gets more expensive the older you get. This is because older people are at an increased risk of falling ill and being unable to work.
  • Occupation. Being self employed can mean being involved in a wide range of industries. If what you do is more risky to your health, you will likely find your policy is more expensive.
  • Medical history. When taking out self employed income protection insurance you will be asked to complete a medical questionnaire. If you have a history of health problems that have kept you off work, or if you smoke, it will have an effect on your premiums.
  • How soon your payments start. Income protection policies have a set period of time before they start paying out, usually ranging from 1-3 months. If you opt for a longer wait, then your premiums will be lower.

What other forms of insurance should I consider?

In terms of a policy that’s going to protect you in order to help pay the bills if you have to take time off work due to illness, income protection insurance for self employed is hard to beat. There are a few other policies that you might want to consider:

  • Life insurance with critical illness cover. Getting one of these policies will guarantee your family a large payment if the worst were to happen, as long as offering the security of a lump sum if you get diagnosed with a serious illness during the term of the policy.
  • Payment protection insurance. This is a type of policy designed to cover selected payments, such as a mortgage, if you are unable to work through illness or injury.
  • Redundancy insurance. Although these policies are usually aimed at people who are employed by someone other than themselves, they often can be used by self employed people in a similar way to income protection insurance. Check out our page on the subject for more information.