How income protection could help the self-employed avoid a financial nightmare

By HarperLees

According to the British Medical Association (BMA), there was a record number of people waiting for hospital treatment in January 2022. It revealed that nearly 6 million people were on waiting lists in England, of which more than 2 million have been waiting more than 18 weeks.

Furthermore, almost 312,000 people had been waiting for more than a year. If that wasn’t stark enough, the BMA added that there was a “growing and hidden backlog”, which could create an even greater demand on health services.

The BMA’s findings could be worrying if you’re self-employed. As you have no entitlement to Statutory Sick Pay (SSP) and may not earn a salary while you’re not working, waiting for treatment could put your financial security in jeopardy.

There is good news though, as you can take steps to protect your earnings if you’re diagnosed with an illness and can’t work while waiting for treatment or during your recovery. Before we discover how you could do this, let’s consider the financial implications of not being able to work.

Your savings may quickly be used up if you can’t work

If you’re unable to work after being diagnosed with an illness, you’ll probably have to live off your savings if you don’t have another source of income. While you may be confident that your savings will last several months, an article in the Independent makes an interesting point.

It revealed research by Macmillan Cancer Support, which showed 83% of people with cancer were an average of £891 a month worse off because of additional living expenses or loss of income.

As such, your savings may not last for as long as you thought. Additionally, you might not be able to meet your mortgage repayments, which could put your home at risk.

Furthermore, you may struggle to maintain your lifestyle and it could put your later-life financial security in danger. This is because you may need to stop paying your pension contributions to meet your current commitments, which could reduce the value of your retirement fund when you retire.

Your standard of living could lower when you stop work, or you may have to delay your planned retirement date.

So, let’s now look at ways you could protect your income or receive a tax-free lump sum to help ensure your short-term and long-term financial security if you’re diagnosed with an illness.

Income protection could ensure your financial security

While you may be healthy as you read this blog, the Covid pandemic shows that you never know what tomorrow might hold. That’s why ensuring you have income protection already in place is so important, as you cannot get future cover for an illness once you’ve been diagnosed with it.

Having income protection could ensure you can meet your financial commitments, such as mortgage repayments and pension contributions, while maintaining your standard of living. Typically, income protection pays around 60% of your regular income and will continue until you return to work, retire, or the cover ends.

Providers usually offer a deferred period, which is the period between stopping work and you receiving the cover. The longer the period, the lower the monthly premiums are likely to be, so a good strategy could be to ensure your emergency fund is topped up so that it will maintain you for three to six months.

This can then dovetail into your income protection, which helps provide a continuous income at a lower premium.

Critical illness cover might also be worth considering

Critical illness cover (CIC) pays a tax-free lump sum if you’re diagnosed with a serious illness, which could pay for private treatment so that you can return to work sooner. Alternatively, it might help you generate an income while you’re off work, enable you to repay debts or cover the cost of modifying your home if necessary.

While the illnesses covered could vary depending on the provider you use, income protection and critical illness usually include serious types of cancer, heart attacks or a stroke.

Having both types of cover could be a clever move if you’re self-employed

If you have income protection and critical illness cover, you benefit from the peace of mind that you’ll receive financial support if you are seriously ill as well as a lump sum. The latter could be used to pay for private treatment or allow you to focus completely on your recovery while maintaining your standard of living.

Not only could this allow you to start earning again, but it could also help secure the future of your business. This is because your clients will not need to go to competitors to receive the service you offer, something that might result in you losing them.

The sooner you have cover, the more cost-effective it is

With both income protection and critical illness cover, one of the main factors determining their cost is your age. This means the sooner you take it, the less it’s likely to cost.

Other factors that determine the amount premiums cost include:

  • Your medical record
  • Your family’s medical history
  • How risky your job is
  • How much income you would like
  • Whether you have any high-risk hobbies.

Get in touch

If you are self-employed and would like to discuss ways you could protect your income, lifestyle and long-term financial security, please call us.

We will ensure the cover is right for you and make sure you fully understand what illnesses you would be protected against. We’ll also work to find the most cost-effective cover for you.

Just email us at or call 01277 350560. We’d be very happy to help.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.