A guide to protecting your income, family and business when you do not have employer sick pay.
Introduction
When you are self-employed, your income often depends on your ability to work. If you are off sick or injured, there may be no employer sick pay, no HR department and no benefits package quietly protecting the household behind the scenes. That does not mean you are powerless. With the right planning, you can build a safety net around your income, your family and your business.
The first issue is cashflow
For many self-employed people, income stops quickly when work stops. The business may still have costs such as insurance, vehicle finance, rent, software subscriptions, stock, equipment, phone bills and tax payments. At the same time, household bills continue. A sensible starting point is to know your personal and business numbers. What does your household need each month? What are your fixed business costs? How long could you manage if income reduced or stopped tomorrow?
Emergency fund vs insurance
An emergency fund gives you immediate flexibility. It can cover short gaps in income, late invoices, repairs or a quiet month. For self-employed people, a larger emergency fund can be sensible because income may be less predictable. However, cash savings alone may not be enough for a long-term illness or injury. That is where protection planning can help. Insurance does not replace good cash management, but it can support you if a problem lasts months or years.
Income protection for self-employed people
Income protection is designed to pay a regular income if you cannot work because of illness or accident and meet the policy definition of incapacity. MoneyHelper explains that income protection typically replaces part of your income and can continue until you return to work, retire, die or reach the end of the policy term, depending on the policy. The details matter. You need to choose the right deferred period, monthly benefit, policy term, definition of incapacity and whether the cover is based on your own occupation. Self-employed people also need to think carefully about how income is evidenced, especially if profits vary.
Other protection to consider
Income protection is not the only type of cover. Life insurance may protect your family if you die. Critical illness cover may pay a lump sum if you suffer a specified serious illness. Relevant life cover, key person cover or shareholder protection may be suitable for limited company directors or business owners. The right mix depends on your family, debts, business structure, health, budget and existing savings. The aim is not to buy every policy. It is to identify the risks that would cause the biggest financial damage and decide which risks you want to insure.
A practical self-employed protection checklist
1. Work out your essential personal spending each month.
2. List your fixed business costs and tax liabilities.
3. Check how long your savings would last if work stopped.
4. Review debts, mortgage, rent and family commitments.
5. Consider income protection, life cover and critical illness cover.
6. Review pension contributions so retirement planning does not get ignored.
7. Put policy details and key contacts somewhere your family can find them.
How Chris can help
Chris Hopkins works with self-employed people, families and business owners who want to protect their income and plan with more confidence. You can read more about Chris here: Chris Hopkins profile. You may also find Abram Partnership's protection page useful: Financial protection advice.
Frequently asked questions
Q: Can self-employed people get income protection?
A: Yes, but the policy must be set up correctly and affordability, income evidence and occupation need to be considered.
Q: Is critical illness cover the same as income protection?
A: No. Critical illness cover usually pays a lump sum if you meet a listed condition. Income protection is designed to pay a regular income if illness or injury stops you working.
Q: Should I rely on savings instead?
A: Savings are important, but they may not be enough for a long-term health problem. Many people use both savings and insurance as part of their safety net.
If you are self-employed and do not know how long you could cope if you were unable to work, book a protection review with Chris Hopkins. A short conversation could help you understand the risks and your options. Contact Abram Partnership.
Compliance / risk note
Important information: This article is for general information only and is not personal financial advice. Protection policies are subject to underwriting, terms, conditions and exclusions. These plans typically have no cash in value at any time and cover will cease at the end of term. If premiums stop, then cover will lapse.
Abram Partnership Limited is an appointed representative of Sense Network Ltd which is authorised and regulated by the Financial Conduct Authority. Registered address: Berkeley House, 41 Avonridge, Thornhill, Cardiff, CF14 9AU. Telephone: 029 2069 3700. Email: enquiries@cardiffifa.co.uk.