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Income Protection Insurance for the Self-Employed Explained

Money Savings Advice Self employed income protection

Income protection insurance for the self-employed is a means of guaranteeing income if you can’t work due to injury or illness. For many people, it offers a degree of comfort in the event of unforeseen circumstances impacting their regular income.

The terms and conditions surrounding income protection for the self-employed can vary significantly, and it is important to take advice.

Like any insurance policy, income protection insurance for the self-employed is often seen as an unnecessary expense. Unfortunately, it is one of those expenses which you will need in the event of injury or illness which prevents you from working.

As a self-employed individual, you obviously don’t have the same protections as those in employment, i.e. enhanced sick pay and guaranteed employment to return to when you are fit again.

Continue reading to get all the details about Income Protection.

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Can I Afford Income Protection Insurance?

Perhaps the right question is, can you afford not to have income protection insurance? The best way to look at income protection insurance is a safety net. The safety net is positioned between your normal self-employed income and what can often be minimal benefit payments.

There are certain variations (such as deferral period) in an income protection policy which could make your premiums more affordable if that was an issue.

A recent survey confirmed that while 41% of the general public have life insurance and 16% have private health insurance, only 9% have income protection insurance.

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How Much Would the Insurance Policy Payout?

The terms of an income protection insurance policy will vary from insurance company to insurance company, but it could be anything up to 75% of your pre-tax income. As we touched on above, it may be possible to reduce the payment if the insurance policy is triggered, which would, in theory, reduce your premiums.

It may well be worthwhile calculating the minimum income you would need for your household to survive and use that as a basis.

Do I Pay Tax on My Income Protection Insurance Payments?

Payments from an income protection policy are usually tax-free – all insurance policy payments don’t normally attract tax. It is therefore very important to ensure that your income from the policy is recorded differently from your self-employed gross income.

What Are the Typical Premiums for Self-Employed Income Protection Insurance?

There is no hard and fast rule when it comes to income protection insurance premiums as it tends to be driven by your personal circumstances. Are you single, married, family to support, mortgage, etc.

It is very important to balance the cost of income protection insurance against the actual income it will provide in the event that you are unable to work as a consequence of illness/injury.

When Can I Start Claiming From My Income Protection Insurance Plan?

Remember, when looking at income protection insurance as a self-employed individual, you are in charge of the terms of your policy. Typically there will be a minimum four week waiting period, from the day you are unable to work before payments from the policy will commence.

The longer the initial waiting period, the lower the premiums, so this will be a consideration when looking to secure a policy within your budget constraints.

Can I Claim Income Protection Insurance Premiums as a Business Expense?

If you operate through a limited company, there may be an opportunity to offset the premiums of the policy against business income. This structure tends to be referred to as executive income protection, but the funds received (by the company) would likely be taxable.

If you are self-employed, then it is unlikely you will be able to offset the premiums against business income.

What Benefits Can I Claim as a Self-Employed Person?

Depending upon your level of income you may be able to claim universal credit which is replacing child tax credit, income support, housing benefit, working tax credit, jobseekers allowance and the employment and support allowance.

It will depend upon your personal situation as to whether you are eligible for benefits as a self-employed person. Many people are surprised that you can potentially claim some of the means-tested benefits even if you are self-employed.

What Is Unemployment Insurance?

As a self-employed individual, there is a big difference between unemployment insurance and normal income protection insurance. Unemployment insurance is a short-term policy which will pay out for typically 12 months if you become unemployed or made redundant through no fault of your own.

This is very different from traditional income protection insurance for the self-employed where you are covered if you are unable to work as a consequence of illness or an accident.

Are There Any Other Policies I Should Consider?

If you are self-employed, then you may like to consider additional insurance such as life insurance, critical illness insurance, private medical insurance and keyman insurance. Obviously, there is a high additional cost with these policies, but again it is a balancing process, what policies can you afford to have and what policies can you not afford to have?

Should I Take Advice on Income Protection Insurance?

There tends to be a natural draw towards setting up a policy which will pay out as much of your lost income as possible. While this is totally understandable, the problem is that the higher the level of income secured in the event of illness/accident, the greater the premiums.

So, you do need to find a balance between what is required and the cost, while ensuring that all of your major expenses will be covered in the event of illness/injury.

There Were 4.78 Million Self-Employed People in the United Kingdom in 2018

There were 4.78 million self-employed people in the United Kingdom in 2018, slightly fewer than the 4.8 million recorded in the previous year. Since 2000, there has been a net increase of 1.53 million self-employed workers in the UK.

How Much Does It Cost for Income Protection Insurance Advice?

There is no figure set in stone when it comes to the cost of advice regarding income protection insurance. However, what you will find is that insurance brokers will work under one of three charging structures:-

  • Charge to client
  • Commission from an insurance company
  • A mixture of the two

Thankfully, in recent years we have seen a significant tightening of regulations and all insurance brokers are now obliged to be transparent with regards to commissions and charges. Failure to do so is a breach of regulations, and you could, in theory, claim compensation.

What Are Tied and Independent Insurance Brokers?

This is a very common question and one you will come across when seeking income protection insurance advice. As the term suggests, a tied insurance broker is only able to work with a limited number of insurance companies when seeking the best deal for their clients.

An independent insurance broker has no such restrictions; therefore, they are able to scan the whole market, to find the best terms and conditions. So why would you use a tied insurance broker rather than an independent insurance broker?

On the surface, many people automatically assume that an independent insurance broker will always be able to negotiate better terms than their tied broker counterparts. This is not always the case. Even with independent insurance brokers, you tend to find they have strong relationships with a relatively small group of insurance companies.

When it comes to tied insurance brokers, very often they have strong negotiating positions because of the constant flow of business, they are able to provide to their insurance company partners. There is no reason why a tied insurance broker could not at least match or even better the terms and conditions negotiated by an independent broker.

Should I Approach a Specialist Income Protection Insurance Broker?

You tend to find that insurance brokers operating in the income protection market also have deep-seated knowledge of other types of complimentary insurance cover such as critical illness, etc. Therefore it does make perfect sense to approach a specialist in this area and discuss any additional types of cover you may require.

Can I Adjust My Income Protection Insurance Policy?

What you tend to find is that the level of income protection insurance required in your 30s may be very different from that required in your 40s and 50s. As a consequence, you should constantly review the level of income protection insurance in place.

Such is the competition in the marketplace that your first point of call should be your existing insurance broker/insurance company when looking to make adjustments. If they are unable or unwilling to tweak your policy, then you may need to seek additional guidance and look elsewhere.

Should I Review My Insurance Cover When Reviewing My Overall Finances?

Yes. As we touched on above, it is unlikely that your income protection insurance requirements will remain constant throughout your working life. There may also be other types of cover which become more relevant in the older years.

When you consider insurance cover in this manner, there is a strong correlation between insurance cover requirements and your financial/personal situation. Therefore, why would you not consider them together rather than in isolation?

Money Savings Advice Tip

Being self-employed can be very challenging, and not knowing where your next paycheque is coming from can be stressful. Our top tip is remove some of the financial stress with self-employed income protection. Speak to an income protection specialist and get a whole market quote that meets your requirements and is based on your personal circumstances.

Can I Secure Income Protection Insurance With an Underlying Illness?

You will be invited to complete an application form when looking at income protection insurance which will include medical conditions. Failure to disclose any previous health issues could see your policy invalidated, and you would not receive any income or repayment of premiums.

There may be some relatively minor existing medical conditions which will have minimal impact on your application/premiums. However, with serious underlying illnesses, it would be more difficult to find cover. There are some specialists who will consider this type of situation, but premiums would be relatively high.


When we look at income protection insurance for the self-employed, it is more a case of can you afford not to have this protection in place? Interestingly, the vast majority of self-employed individuals who read this article will likely have never even considered income protection insurance. Akin to house insurance, it is an expense until it is needed!

Quick Income Protection FAQs

The cost of income protection insurance will depend upon your individual scenario and your requirements. The long-term income protection cover is more expensive as it could payout for a number of years in various scenarios.

Short-term income protection is limited to between 12 months and 24 months per claim per condition and is, therefore, less of a liability for the insurance company.

While in exceptional circumstances, you may see unemployment protection extended to 24 months, the normal duration is 12 months. All policies include an initial period when no payments are made, which can be anything between 4 weeks and two years.

The deferral period would depend on your redundancy package, level of savings and financial liabilities.

When taking out an income protection policy, which includes redundancy insurance, you need to specify your salary at the time. There is some variation in the level of funds made available under this type of policy, but it tends to vary between 50% and 70% of your regular monthly income.

So for example, if prior to being made redundant you earned £2000 a month before tax, you would receive between £1000 and £1400 a month if made redundant.

No. Income protection would subsidise your reduced income in the event of illness/injury (or other elements affecting your policy) while PPI will simply cover repayments on a particular debt. They are very different.

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How Can Money Savings Advice Help You With an Income Protection Insurance?

Here at Money Savings Advice, we have partnered with some of the UK’s leading Income Protection Insurance brokers. They have already helped thousands of people get the best Income Protection Insurance cover and they can do the same for you.

Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.

If you would like to speak to one of these brokers who can provide you with a ‘whole market quote’ then click on the below and answer the very simple questions.

Mark Benson

Mark has been writing professionally for over ten years for the financial sector. Having started in the financial world as a stock-broker in central London and then moving to equities trader Mark is one of our senior financial writers who has a vast knowledge of multiple financial sectors.

Mark Benson

Mark has been writing professionally for over ten years for the financial sector. Having started in the financial world as a stock-broker in central London and then moving to equities trader Mark is one of our senior financial writers who has a vast knowledge of multiple financial sectors.

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