Protecting your income when you are self-employed

The freedom of being your own boss is one of the many appeals of being self-employed. The choice to be able to work from home, to pick your own hours and who you work with are all desirables, but with self-employment can come a lack of financial security. Not everyone has the luxury of having a large cushion of savings, and for some people securing the next contract is as important as the job itself.

Self-employed people may have multiple ways of paying themselves and may have multiple self-employed statuses. For example, someone who works as an independent builder on one-off building contracts may also have rolling contracts to maintain company buildings or do other freelance paid jobs in their local community.

But without the financial security of having a contracted job and an employer with a regular income, and the added legal protection of notice periods and sick pay, it is important to build in this protection yourself.

Income protection for the self-employed

Income protection is one of the most common policies that is taken out by those who are self-employed as it can ensure the basic costs of living are covered in the event of a sickness or accident.

Income protection tends to pay out between 50% and 70% of your regular income if you cannot work, either for a set period or until you reach retirement age.

One of the challenges for those who are self-employed is providing an accurate assessment of income to an insurer when it can be variable each month or year. However, many leading named insurers have addressed this issue, and an ever-increasing number of policies are designed specifically with fluctuating incomes in mind.

There are now a range of mortgage and rent cover policies for flexible workers which can provide cover for up to two years. Some don’t require you to have to work a certain number of hours or show proof of income to be eligible, but typically the benefit must be no higher than your housing costs. Other policies do require proof of income but offer capped benefits, for example up to £250 a week.

For those who don’t have a regular income, there are insurance providers who offer policies that provide cover for those who can show evidence that they work a minimum of 16 hours per week.

The cost of protection

The price of income protection is based on factors including your age, profession, lifestyle and health and premiums can vary widely. A financial adviser can provide you with a no obligation quote based on your personal circumstances.

There are ways you can reduce the cost of your income protection cover. You can often lower monthly premiums by delaying when the policy starts to pay out. This may be a good option if you know you could cover your expenses out of your savings for a few weeks or months.

How to find the right policy for you

Each Insurance company varies in the type of insurance cover they provide, the cost of cover and the eligibility rules surrounding the application.

This is where your independent financial adviser can really help. They are able to review your circumstances, know which insurance company will be able to offer you income protection and secure quotes to be able to find you the best cover. They are also experienced at working with the insurance company underwriters and will be able to prepare your application with all the information needed for it to be accepted as well as handling queries if they arise.

A good financial adviser will also be able to help arrange other key financial planning, such as setting up a pension, arranging a mortgage or buying a life insurance plan.


Please note: If premium payments are not maintained, the benefits of the plan will be put at risk. If premium payments cease altogether, the benefits of the plan will cease. The cover may be less than you need if you do not review it regularly.

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