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Income protection insurance – a guide for self-employed tradespeople

Income protection insurance is an important financial safety net for self-employed tradespeople. This guide explains how a protection plan can provide essential support through illness or injury.

When you’re self-employed no one is going to pay you to be off work when you’re ill or injured. It can pay to be prepared for the worst.

That’s why self-employed income protection insurance could be an important consideration if you are a self-employed tradesperson. It requires a regular financial outlay with monthly or annual payments.

But this outlay may outweigh the potential consequences if you don’t have it. Especially if you are the main breadwinner in your family.

It can be hard knowing what to do if you are self-employed and fall ill. This guide offers some of the answers.

What is income protection insurance?

Income protection for the self-employed is a type of insurance. The policy can provide regular payments in the event that you are off work for an extended period of time. Depending on the policy and the amount you choose to cover, you may expect to receive around half to two-thirds of your pre-tax earnings.

If you require more cover, it’s possible to buy an income protection plan that covers a higher proportion of your earnings. Choosing more cover may increase the cost of your premium. Income protection insurance payments are not tax deductible against your business profits. However, the money you receive from a policy isn’t treated as taxable income.

Why self-employed income protection is important

Unlike employees of a business, self-employed tradespeople can’t claim statutory sick pay (SSP) if they fall ill.

Instead, you’d have to rely on:

  • Personal savings
  • Other income sources, such as your family and friends
  • A loan or other financial support that might involve borrowing money

Protect your livelihood

Think about a self-employed income protection plan for tradespeople

Guiding you to better business

The government does provide some financial support. You should check that you’d qualify to receive it and whether the amount you’d receive would be sufficient for your needs.

Government support includes:

How income protection insurance works

Each policy is different, and the way your income protection works will depend on your insurer. You should always check your policy documents for the full details.

However, if you have cover and need to make a claim self-employed income protection insurance will work something like this:

  • You make a claim in line with the terms of your cover
  • Your claim is successful, and you receive regular payments to replace part of your income while you can’t work due to an illness or accident
  • Depending on your policy, you’ll receive the money until you start working again (or you retire, reach the end of the policy or die)
  • You can usually claim as many times as you need to during the period of the policy

Ppolicies will sometimes have a deferred period, which means there will be a delay at the start of your claim before it pays out. This can be as little as a month.

Income protection policies usually won’t pay out for the following:

  • Pre-existing health problems
  • Injuries or illnesses that are self-inflicted or caused by alcohol or drug abuse
  • If you are unemployed or are made redundant
  • If you die

Protect your livelihood

Think about a self-employed income protection plan for tradespeople

Guiding you to better business

The benefit of income protection insurance is in helping to pay regular, essential bills, such as:

  • Mortgage
  • Rent
  • Living costs
  • Childcare costs

How much does income protection insurance cost?

The cost of income protection insurance for the self-employed depends on a number of factors. These include:

  • How old you are (it costs more the older you get)
  • Your medical history (and often that of your family)
  • How much you earn
  • What type of work you do (jobs with greater risks usually have higher premiums)
  • Whether you drink or smoke
  • How long you want the deferred period to be before payments start
  • How long you want the policy to pay out (shorter-term policies for a few years cost less than policies that continue paying out for more than five years)

Types of income protection insurance policies

There is a fairly wide choice of self-employed income protection plans available from a range of providers. These are some useful ways you can research and purchase the cover: 

  • By working with a broker
  • By going direct to an insurer
  • By using a price comparison website

FAQs

What is income protection?

It’s a type of insurance that is useful for self-employed tradespeople because it can pay out if you fall ill or are injured and can’t work.

Why do I need self-employed income protection?

Unlike employees of a business, self-employed tradespeople may have fewer options open to them to receive income if they can’t work due to injury or illness. Income protection insurance can act as a financial safety net by paying some of the amount you earn while you are off work.

How does income protection insurance for the self-employed work?

You make regular payments (usually monthly) just like many other types of insurance. There are usually various conditions as part of the policy around when it starts paying out and how much it pays. It is also determined by your age and what type of work you do.

How much income protection insurance do I need?

The best way to work this out is to look at how much you currently earn and what payments you have to make each month. Then think about how much you’d need to cover all your essential monthly payments.

What does an income protection plan cover?

Income protection insurance usually covers most types of illness or injury. These don’t have to be work related. Policies are unlikely to pay out on pre-existing health conditions, if you are unemployed or if you die.

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DISCLAIMER
This is information – not financial advice or recommendation. The content and materials featured or linked to on this blog are for your information and education only and are not intended to address your particular personal requirements. The information does not constitute financial advice or recommendation and should not be considered as such. Checkatrade website is not regulated by the Financial Conduct Authority (FCA), its authors are not financial advisors, and it is therefore not authorised to offer financial advice.
Always do your own research and seek independent financial advice when required. Any arrangement made between you and any third party named or linked to from the site is at your sole risk and responsibility. Checkatrade blog and its associated writers assume no liability for your actions.

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