Guide to Self Employed Insurance

Income Protection for the self-employed is a vital protection for a section of the population that doesn’t get any sick pay and would have to rely on minimal state benefits (e.g. Employment and Support Allowance at £90.50 per week) or savings to get by without their income.

Given that many people simply don’t have sufficient savings or couldn’t survive on the government benefits that are available if they couldn’t work as a result of accident or sickness, Income Protection can step in and provide a vital lifeline in the form of a regular monthly income.

The best policies will pay out a monthly income if you can’t do your specific job and will provide you with that income long-term, right up until your retirement age if you’re so unwell you can never work again.

Given many self employed workers are employed in manual occupations, they’re at particular risk of injury or illness through work and so are arguably more in need of sick pay cover than an employed worker, yet the self employed simply don’t receive this protection.

You can cover between 50% and 70% of your profit before tax, depending on the insurer. Many people make the error of covering a percentage of their revenue rather than profit and over-insure as a result — avoid falling into this trap by speaking with an expert adviser and discussing your income with them before taking out a policy.

Can the Self Employed Get Income Protection?

Yes, self-employed workers can get Income Protection Insurance just like employed workers.

This is good news because self employed workers are vulnerable, not getting the same sick pay or other protections that employed workers have.

Self-employed Adrian has been a gas fitter for over 20 years. He specialises in bespoke fireplaces and currently runs Gas Tech, a Leeds-based gas fitting and engineering company that works throughout Yorkshire.

“You start to realise that as you get older, the risk of getting injured goes up,” says Adrian. “So I thought it was time I protected my income to ensure all of my outgoings would be covered if I couldn’t work.”

Ben is a self-employed bricklayer in his 20s. Despite being a young man, he’s already taken steps to protect his income in case he can’t work.

“After a year or so, I realised that my earnings were vulnerable if I was sick or got in an accident,” says Ben. “So I started to look around for some insurance that could provide the kind of protection I needed.”

Private Health Insurance can help you avoid NHS waiting lists as you’ll benefit from fast-tracked consultations in private facilities overseen by private medical practitioners.

Health Insurance speeds up your diagnosis, treatment and care compared to what’s available on the NHS. You also receive the benefit of treatments, such as so-called ‘super drugs’ for cancer, that the NHS may not always fund due to cost.

This will take place in a private facility with superior amenities than the NHS can offer, such as the ability to recuperate in your own ensuite room while enjoying round-the-clock visiting hours.

Do the Self Employed Need Health Insurance?

• At the end of April 2019, there were 4.3 million people in England waiting for an operation through the NHS.
• 1 in 14 people currently on the NHS waiting list have been waiting more than 18 weeks for hospital treatment.

Many people working for themselves simply can’t afford to wait 18 weeks for an inpatient operation, especially if the condition is painful and preventing them from working, such as might be the case if you need a joint replacement, for example.

If you don’t get any sick pay and you’re out of work with a debilitating medical condition waiting for treatment, a long NHS waiting list is the last thing you want to face.

Private Health Insurance will offer you care exactly when you need it the most, potentially allowing you to get back to work and earning again much faster.

The most common form of Life Insurance is known as Term Insurance. Here you pay premiums each month and, if you die within a set term, your loved ones receive a lump sum payout that they can use to make up for any gaps in their finances your loss may create.

Whether it’s paying off a mortgage, providing cash for everyday living or meeting any other expenses, Life Insurance is there should you need it.

Term Insurance can either be Level Term Insurance, where the benefit remains fixed over the life of the policy, or Decreasing Term Insurance, where the benefit falls over the policy’s term, usually in line with a repayment mortgage.

Company Director? The Tax-Efficient Life Insurance Through Your Business…

If you’re a company director rather than a sole trader, meaning you operate through a limited company structure, you have the option to take out a tax-efficient Life Insurance through your business that could offer significant savings in tax and National Insurance over paying for a policy personally — up to around 50%.

This is known as Relevant Life Insurance and is a HMRC-approved policy that many company directors use to cover themselves and their families via the business.

Relevant Life Insurance needs to be set up correctly to ensure it retains its tax-efficient status and is correctly written into trust so that the payout remains separate from the business should you need to make a claim. For help and advice, don’t hesitate to pop one of Drewberry’s experts a call today on 02084327334.

Do Self-Employed Workers Need Life Insurance?

One of the most common employee benefits offered to employed workers is Group Life Insurance. This is because it’s among the cheapest employee benefits to offer and one of the easiest to understand.

Group Life Insurance offers workers a multiple of their salary if they pass away while in employment with the organisation that owns and pays for the policy. It’s a popular benefit with workers as it provides free insurance for their families should the worst happen.

However, not having an employer, self-employed workers don’t get employee benefits and it’s up to them to provide their own Life Insurance and similar benefits.

This usually takes the form of personal Life Insurance or, if you’re a company director, Relevant Life Insurance to make your own provisions.

Think to yourself: How would your loved ones cope if you were to pass away? Could they keep up with the mortgage / rent, pay the other bills and continue to survive financially without your income?

Mortgage Protection Insurance is made up of two separate products with two different aims.

Mortgage Life Insurance

Mortgage Life Insurance is a type of Life Insurance that will cover the cost of your mortgage debt.

This will mean your loved ones don’t have to worry about having to keep up mortgage payments if you were to pass away because they’ll be able to clear the mortgage with the lump sum they’ll receive on your death.

You can add Critical Illness Cover to Mortgage Life Insurance so you’ll receive a payout should you be diagnosed with one of the critical illnesses at the severity set out in your policy documents.

Mortgage Payment Protection

Mortgage Payment Protection Insurance (MPPI) will protect your monthly mortgage payments over the short term (for a maximum of 12, 18 or 24 months, depending on your policy).

If you aren’t earning, this insurance will cover the cost of your monthly mortgage payments by paying out on a monthly basis until you can return to work or the payment period ends, whichever is sooner.

Do Self Employed Workers Require Mortgage Insurance?

Without Mortgage Insurance, ask yourself how you or your family would cope if you could no longer earn and make monthly repayments, say because you’re ill, unemployed or even sadly have passed away.

Would you / your family be able to keep up with mortgage repayments or would there be a financial struggle resulting in the loss of your home?

Critical Illness Cover pays out a tax-free lump sum should you suffer from a serious illness or injury during the policy’s term.

Every insurer that provides Critical Illness Cover will have their own list of critical conditions that are covered by the policy. This can range anywhere from fewer than 10 conditions to over 100 depending on the insurer.

Some Critical Illness policies also offer ‘partial payments’ when you contract a less serious condition, leaving the remainder of cover in place. However, if your condition doesn’t meet the severity criteria, such as early stage cancer or a ‘minor’ heart attack, then you may not receive a payout at all.

Critical Illness Cover can also be purchased combined with Life Insurance.

Do I Need Critical Illness Cover?

If you are diagnosed with a critical illness, the lump sum provided by Critical Illness Cover can be used to keep up with your expenses to protect yourself and your loved ones.

You can choose the size of your payout when you purchase Critical Illness Insurance. Often, cover is aligned with your mortgage to allow you to repay the debt if you were to fall critically ill.

Critical illnesses are often life changing. If you are left paralysed by a stroke or are diagnosed with cancer, a lot of costs may be involved to organise care and treatment; you might also need to take a a great deal of time off work to recover.

The payout from a Critical Illness Insurance policy can help you cover vital expenses during a difficult time, whether this is by helping you adapt your home to meet the needs of a new disability or paying for private medical and caring requirements.

• One of the most common reasons behind Critical Illness claims is heart attacks. There are an estimated 1.4 million heart attack survivors in the UK — British Heart Foundation.
• Around one out of two people born after 1960 will develop cancer during their lifetime — Cancer Research UK.

Don’t Forget Income Protection…

Critical Illness Cover has its place, but a lump sum payout may not be the best way to cover day-to-day expenses if your illness prevents you from working.

Instead, Income Protection could be the better choice because you’ll receive monthly payments for as long as you need rather than being given a one-off lump sum that could have to stretch a very long way if you can never work again.

While many people have heard of Personal Accident Insurance, there tends to be some confusion about what exactly it is and what it does.

To set the record straight, Personal Accident Insurance covers injuries you receive as a result of an accident. Just what is covered depends on the policy you buy — some policies will cover minor injuries that don’t necessarily prevent you from working, while others require you to be signed off work with the injury to claim.

To give you an idea of the variability of these policies, some cover fractures, while others do not. Certain policies will only cover you if you’re permanently unable to work; meanwhile, others will pay out for loss of earnings due to temporary incapacity.

While all of this may sound similar to Income Protection Insurance, the major difference is that Personal Accident Insurance offers a one-time, lump sum benefit. This is compared to an ongoing supportive income with Income Protection, potentially right up to retirement if you opt for a long-term policy.

Moreover, Personal Accident Insurance benefits are typically capped at an amount between £5,000 and £20,000. While this might seem like a reasonable payout in theory, this probably won’t last you very long if you had no other source of income and need to be off work for months or even years to recover.

Personal Accident Insurance vs Income Protection

There are a few key differences between Personal Accident Insurance and Income Protection that that generally tends to make Personal Accident Insurance a less appealing policy if you are looking to protect your income.

Public Liability Insurance is there to protect both your company, and you as the owner of the business, should anyone suffer property damage or personal injury resulting from your company’s activities.

This might include clients, suppliers or members of the public and can cover incidents such as a trip or fall on your premises or a member of the public’s vehicle getting damaged as a result of your business’ activities.

Do I Need Public Liability Insurance?

As a result of property damage or personal injury, you could be taken to court and sued. Accidents happen, especially if your business frequently interacts with others.

This could lead to high defence costs and the need to pay for damages and the other side’s legal costs if you lose. Even arbitration / mediation, which avoids a court setting, can be costly, especially if you’re required to pay compensation at the end of it.

This makes liability insurance an essential cornerstone of any self-employed insurance portfolio, even if it isn’t a legal requirement in the UK for most businesses (note that for some businesses, such as horse riding stables, you’ll need Public Liability Insurance in place as a condition of your trading).

You could even lose business by not having it in place — some clients may want to see proof of adequate insurance before they’ll do business with you.

If you’re a self-employed individual who provides advice and services to your clients, you’re liable if that advice, whether through negligence or a simple mistake, causes your client a financial loss.

Professional Indemnity Insurance is there to step in to cover any legal costs and damages that might arise if a client takes action against you for a mistake you or your business has made.

Such mistakes could be anything, ranging from:

• Giving bad advice
• Delivering poor designs and professional services
• Professional negligence
• The loss of documents or data
• Third-party financial losses
• Defamation
• Breach of copyright and / or confidentiality.

Which Self Employed Workers Need Professional Indemnity Insurance?

Self-employed professionals who typically need to consider Professional Indemnity Insurance include:

• Doctors
• Solicitors
• Engineers
• Architects
• Journalists
• Accountants
• Business consultants
• Financial advisers.

For certain professions, Professional Indemnity Insurance is sometimes stipulated as a requirement by clients or industry bodies, so a policy could even help you obtain more work.

If you don’t have Professional Indemnity Insurance in place, you could be on the hook for significant sums of financial damages owed to a client as a result of court proceedings against you, so it makes sense to ensure you’re covered adequately.

Whether or not you’ll need insurance as a self employed individual depends on your circumstances and the nature of the business you’re undertaking.

Certain insurances are legal requirements, such as Employer’s Liability Insurance if you hire staff beyond close relatives of you, the company director. This will pay out if anyone working for you is injured on the job and has a minimum legally mandated payout of £5 million.

If you run a horse riding stables, for example, then Public Liability Insurance becomes a legal necessity. However, for most self employed people Public Liability Insurance isn’t a legal requirement, although it’s good practise to have in place if you regularly interact with members of the public, such as if you run a shop.

Professional Indemnity Insurance is usually mandated as a requirement by certain regulatory bodies, such as those covering accountants, solicitors, architects and other providers of professional services.

Do I Need Personal Insurance if I’m Self-Employed?

Personal insurance for the self-employed is a different matter. While Life Insurance or Income Protection Insurance aren’t legal requirements, you’ve got to consider what would happen to yourself and / or your family should the worst happen and you pass away or become too ill to work.

Without sick pay or savings, many self employed workers would struggle if they were suddenly out of work due to accident, sickness or even death.

Yes, it’s possible to get Income Protection as a self-employed worker.

In fact, certain insurers even cater to self employed workers, building Income Protection policies around shorter deferral periods to take into account a lack of sick pay, for example and having a charing structure specifically for those in manual occupations.

While some providers will certainly sell you Unemployment Insurance as a self-employed worker, it’s not something we tend to recommend at Drewberry.

This is because it can be very difficult to claim on an Unemployment Insurance policy when you’re self-employed, so you risk having paid premiums for no payout when you need the policy to kick in.

Self employed individuals rarely meet the definition of ‘unemployed’ as stipulated by an Unemployment Insurance policy because, even if you have no work coming in or lose a contract, you’re still technically employed by yourself.