Can you get income protection if you are self-employed?

Can I get income protection if I am self-employed? How does it all work?

Yes, if you’re self-employed you can get income protection – and in fact it’s probably more important for a self-employed person, because you don’t have an employer to fall back on for sick pay.

If a standard employed person is off work sick, they are likely to be paid for at least a certain period. If you’re self-employed, you don’t have that. You just rely on what you’ve got in your accounts whilst you’re off.

Income protection is best described as private sick pay. If you can’t work due to illness or injury, an insurer will pay you a monthly benefit, based on a percentage of your monthly income. You’ll receive that on an ongoing basis each month until you’re fit to go back to work – or until the end of that policy term.

Do you need income protection insurance if you are self-employed?

Yes. Income protection, life insurance and critical illness are types of insurance, and while they’re not mandatory as a part of a mortgage process, we strongly advise you to have them.

Protection ensures you can keep your property if the unexpected happens. The self-employed have no employer sick pay to fall back on, so you’d want a safety net behind you in case you aren’t able to work.

People need to think about how they will pay their mortgage if they can’t do their jobs. If that is due to illness or injury, an income protection policy can help cover the bills and mortgage for you.

What is the most suitable income protection for self-employed people?

It’s going to vary for every person I speak with. The best thing to do is to talk to an advisor, as we will recommend a specific approach for you.

A suitable policy will be designed around your occupation, your income and your budget.

Insurers have an occupation list and may charge more for higher risk jobs. It will depend on the deferred period as well, which is how long you can wait for that monthly income to start.

For more detail, come and have a chat with us, as everyone’s circumstances are different.

How is income protection calculated for the self-employed?

Insurers usually base it on your net profit, not the turnover of your business. For most self-employed people, that means looking at your SA302s – your self-assessment tax returns – or your accounts. Insurance providers typically take an average of your income over up to three years.

How much income protection do you need when you’re self-employed? Can you get 100% income protection? What is the maximum benefit of income protection?

The maximum benefit will depend on how much you’re earning and the calculation the provider uses.

You can’t get 100% cover – it’s usually between 50% and 70% of your monthly earnings.

But the benefit from income protection is completely tax-free, so the payment should be enough to cover your costs.

Generally, if you’re aiming to cover a mortgage, we would look for a protection policy to give you the highest level of benefit a month.

>If you’ve got a budget in mind for your premiums, we can taper the cover down to meet that. If you had a slightly lower budget and just wanted to cover the mortgage, we can factor that in. You then need to think about how to cover other bills.

How much is income protection a month?

It does vary. I couldn’t put a figure on it without actually sitting down with a client. The protection process is not smooth, as insurers go into a lot of detail about your health and often ask for a GP report. Some will want a medical screening, where an insurer’s in-house nurses will do some tests with you.

Along with what we provide on the application, all that information gives a personalised monthly premium. If you’ve got no health issues or family medical history, it could be a basic price, although it will still depend on the amount of cover we’re going for. Come and have a chat with us to understand the costs in detail.

Why is income protection important when you are self- employed? What are the pros and cons of having income protection when self-employed?

If you’re self-employed, you don’t have an employer to give you sick pay if you can’t work. The pros do outweigh the cons of the policy, as this protection will replace your income if you can’t work. It pays out tax-free and is tailored to your circumstances. Income protection provides you with genuine peace of mind, and it’s a long-term benefit.

If you came to me as a 20-year-old, having bought your first house and wanting to take income protection, you can get cover up to age 68. It can run until retirement, even after your mortgage ends.

The downside, of course, is that it’s a monthly cost. You’ve got to pay that premium. But you need to remember what you’re actually getting for it – that peace of mind and reassurance. Also, some policies are slightly cheaper when you start them if they are reviewable. That means that as you get older and the longer you’ve had the policy, the price will go up.

But you could always opt for a guaranteed premium that stays the same throughout the policy, to address that disadvantage.

If you have any pre-existing health conditions, insurers could provide exclusions to those – which means they won’t pay out the benefit if you’re off work for that reason. Otherwise, they may apply loading, which makes the policy more expensive. The key thing is that we can tailor the protection to a client’s circumstances and what suits them.

Can I claim self-employed income protection insurance as a business expense?

You would need to discuss that with your accountant for the correct advice. It’s protecting your personal income, so typically it isn’t an allowable business expense.

How long will my self-employed income protection insurance policy pay out for?

If you started when you were 20 and it’s covering you to age 68, it will pay out for the length of the policy or until you’re able to go back to work.

If you can’t go back to work, it will pay until you retire or the policy ends. Aviva stated back in 2024 that the average income protection claim length was six years and nine months. The longest ever income protection claim as of 2024 was still paying out after 39 years.

If I don’t earn the same salary each month, how will my income be protected?

That’s a common question for anyone who’s self-employed. The insurer isn’t looking at your bank statements to see what you’re earning monthly – they’re using your tax returns, which give a yearly figure. They then average that over the previous three years.

Once that benefit amount is deemed to be correct by the underwriter by checking those accounts, that’s what it will stay at.

If your income massively increases, it’s worth returning to us because you could increase that benefit amount. It does mean that the cost would go up as well, if we’re covering more than at the start.

We’ve covered all of the main questions, but how can a mortgage broker help?

As you may realise from all of these questions, income protection for self-employed people can be confusing. Looking at it on your own can be a bit tricky and daunting. It’s always best to reach out to us. We can talk you through the process, give you an idea on pricing and go through the benefits of it with you.

Key Takeaways:

• Income protection is private sick pay and is highly recommended for the self-employed because they do not have employer sick pay to rely on if they become ill or injured.
• The maximum benefit is generally between 50% and 70% of your monthly earnings, and the benefit payments are completely tax-free.
• Insurers calculate the income benefit based on your net profit, typically averaging your income over up to three years using your self-assessment tax returns (SA302s) or accounts.
• The most suitable policy varies widely and is tailored to your specific occupation, income, and budget; seeking advice from an advisor is recommended.
• Income protection is a long-term benefit that can provide peace of mind, with policies available to cover you until retirement.