Lockdown and self-isolation rules during the Coronavirus pandemic reminded us that life can be extremely challenging if you become too sick to work for a significant period of time. Most employees in the UK are eligible for statutory sick pay from the government, albeit the weekly amount of £96.35 won’t stretch very far. But statutory sick pay isn’t available to those who work for themselves. In other words, it’s up to you to protect your income. Fortunately, there are several options to choose from, and your independent financial planner can help you to determine which is the right one – or the right combination – to suit you.

Given the lack of statutory sick pay available, this is arguably the most valuable type of insurance taken out by the self-employed. An income protection policy will provide you with a tax-free replacement income in the event you have to stop work for any medical reason – including physical conditions as well as mental health or stress-related illness. In most cases, you can take out a policy that will provide a percentage of your earnings, usually somewhere between 50% and 65% of your regular income.

Income protection policies can vary quite significantly, depending on the amount of cover you choose, the cost of insurance premiums, when the cover kicks in and how long you need it to last for. Policies usually continue to pay out until you’re well enough to return to work and some policies will cover people until retirement.

This is an insurance policy that pays you a lump sum if you’ve been diagnosed with a specified serious illness, for example, a heart attack or stroke, or certain types of cancer, or you have become permanently disabled. Although it won’t pay you a regular income, a lump sum payment could help you to pay off a mortgage or clear any outstanding debts; reducing any financial stresses and strains so that you can focus on treatment and recovery. However, not all illnesses are covered, and different policies will have different definitions of what constitutes a serious illness. In other words, it’s important to check the small print before you choose your policy.

How much you can expect to pay for critical illness cover will depend on factors such as your age, your lifestyle (whether you smoke and if / how much you drink), and whether you have any pre-existing medical conditions. The cost of cover will also depend on the size of the lump sum and how long you’d like to be covered. Typically, you might choose a policy term that matches your mortgage term, or perhaps a term that ends when your children (if you have them) are financially independent.

his pays out a lump sum on the event of your death and is an important form of insurance protection for anyone with a family or other dependents. It’s perhaps more pertinent for the self-employed because, they won’t have a ‘death in service’ benefit that many employed people enjoy.

Generally speaking, there are a number of different types of life insurance available:

• Level term life assurance: where you choose a specific number of years you want the life insurance policy to remain in place. The insurer will pay a fixed amount if you die within this policy term and the amount paid out will stay the same regardless of when within the policy period you die. This type of cover is appropriate for mortgage protection, and family protection (while the kids are financially dependent).
• Decreasing term life assurance: this is a cheaper option, where the sum due to be paid out gets smaller each year, usually because the sum required will be used to pay off the remainder of a mortgage.
• Whole-of-life insurance: as the name suggests this more expensive form of life insurance guarantees a lump sum pay-out whenever you die, rather than within a specified period.
• Family Income Benefit: instead of a lump sum, this type of cover would pay out a regular income for a specified period. The monthly amount is usually set to cover a salary and the cost of cover will depend on the amount of income required, the policy term and the health / age / lifestyle of the person insured.

For the self-employed, some or all of the above protection policies can offer you greater financial security and peace of mind that you can avoid a heavy impact on your, or your family’s, lifestyle if the worst happens. Most importantly, with all these policies, you can choose the type of policy and level of cover designed to suit your specific needs as well as your budget. However, it’s important to realise that insurance policies are never cheap, and that you will need to continue paying monthly premiums to keep your insurance policy (or policies) active, even during lean business periods.

Being self-employed doesn’t mean you have to go it alone. At Amber River, our independent financial planners regularly work with self-employed clients to create a financial plan to help them look after what’s most important. As part of a comprehensive life plan, they can provide guidance on the right type of policy to suit the needs of you and your family. They can also help find the most competitive and cost-efficient policies available to you from insurance providers across the marketplace.