Why income protection is vital for the self-employed


Could you live on £5,213 per year?
That’s the maximum in employment and support allowance (ESA) a self-employed person aged 25+ will receive if accident or sickness stops them working for a year. For most people, that would be a massive drop in income. With no statutory sick pay, self-employed people are particularly vulnerable.
So how would you pay the bills if you can’t work due to sickness or injury?
That’s the question self-employed small business owner Professor Jo Clarke asked in 2016. Jo, a forensic psychologist and single mum, came to Drewberry seeking protection for her and her children in case she couldn’t work. Now she has Income Protection Insurance, she can rest easy.
Income Protection covers your core monthly outgoings – the vital payments, such as your mortgage, bills and food – if you can’t work. The Financial Conduct Authority stated in a May 2016 report that “…millions of households would ideally have some form of Income Protection”.
Income Protection can be tailored to your needs, which means there are plans out there for everyone.
But some variations aren’t all positive – be wary of inferior plans offering ‘suited occupation’ cover. Here, you might face your claim being denied because the insurer deems you fit to work in another role, most likely employed by someone outside the business you’ve worked so hard to build.
So always opt for ‘own occupation’ cover to ensure the policy pays out for anything that medically renders you incapable of running your practice and treating clients.
You can customise your monthly payout – insurers generally allow you to cover between 50% and 70% of your income. The lower the benefit, the cheaper the premium.
Increasing your policy’s waiting period (known as a deferral period) will also cut the cost of cover. Those who can wait longer before the insurance kicks in, perhaps living on savings, can get cheaper premiums.
The two major variants in Income Protection are short-term and long-term plans. Short-term polices stop paying after one or two years. They are cheaper, but consider that if you’re so ill you have to claim for 12 months or more, you’re most likely severely incapacitated and will be for a lengthy period. As such, long-term policies are the sensible option which can pay out until retirement.
Don’t be caught out
The risk of accident and sickness is very real. Just over 2 million Brits are out of work because of long-term sickness according to the Office for National Statistics (ONS).
The self-employed and small business owners are at particular risk, because the buck stops with you when it comes to covering periods of sickness, however long. If you can’t work in your practice, and there’s no practice without you, you could get caught in a precarious position. Income Protection can help fill that gap.
To see how much it could cost, head to the Drewberry website and get a quote for income protection – Private Practice Hub members get one month free.