Self-employed guide
No employer, no sick pay, no safety net. If you stop working, the income stops the same day — here is how cover works for sole traders, contractors and company directors.
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Employees have a cushion: Statutory Sick Pay at minimum, and often several months of contractual sick pay on top. Self-employed people have neither. If illness or injury stops you working, invoicing stops immediately while overheads, rent and mortgage payments carry on.
The state fallback is Employment and Support Allowance or Universal Credit — both means-tested and set far below typical self-employed earnings. Income protection is the only product that reliably replaces a monthly income for as long as you cannot work.
SSP is for employees only. Self-employed workers get nothing.
No work billed means no money in, from day one.
Premises, tools, software and insurance still need paying.
This is the part that trips people up. What counts as income depends on how your business is structured, and insurers differ in how generous they are.
| Your structure | Income usually assessed as | Evidence typically required |
|---|---|---|
| Sole trader | Net profit before tax | SA302s or accounts, 1–3 years |
| Partnership | Your share of net profit | Partnership accounts |
| Limited company director | Salary plus dividends; some insurers add retained profit | Company accounts and payslips |
| Contractor (day rate) | Annualised day rate, less expenses | Signed contract plus invoices |
Insurers normally allow you to cover 50–70% of assessed income. Since definitions differ between providers, the same person can be offered noticeably different benefit ceilings.
The deferred period is the wait between stopping work and the first payment. It is the biggest lever on price. Employed people match it to sick pay; you match it to how long your cash reserves would realistically last.
Highest premium. Right if you have little or no cash buffer and need benefit almost immediately.
The common self-employed choice. Balances cost against a realistic two to three month reserve.
Noticeably cheaper. Suits people with six months of savings or a partner's income to lean on.
Cheapest option. Only sensible with substantial reserves — treat it as catastrophe cover.
Yes. Most major UK insurers cover sole traders, contractors and company directors. Underwriting looks at your occupation, health and how your income is structured rather than an employment contract. Because you have no employer sick pay, insurers generally allow shorter deferred periods, which means benefit can start sooner.
For a sole trader, insurers typically use net profit before tax, averaged over the last one to three years of accounts or SA302s. For a limited company director, they usually combine salary and dividends, and some insurers will also include retained profit in the company. Newly self-employed applicants may be assessed on the most recent 12 months.
A healthy non-smoking office-based sole trader in their thirties can often get cover from around £15 to £30 a month for a moderate benefit with a longer deferred period. Premiums rise with age, smoking, manual occupations, shorter deferred periods and a higher percentage of income insured.
The deferred period is how long you wait before benefit starts. Employed people usually match it to their sick pay; the self-employed instead match it to their cash reserves. If you have three months of savings, a 13-week deferred period keeps the premium down. If you have almost no buffer, a one- or four-week deferred period costs more but starts paying quickly.
No. Statutory Sick Pay is only available to employees, so self-employed people receive nothing from an employer if illness stops them working. The state fallback is usually Employment and Support Allowance or Universal Credit, which are means-tested and far below most self-employed earnings.
For a sole trader, a personal income protection policy is normally paid from post-tax income and the benefit is paid tax free, so it is not a deductible business expense. A limited company can pay for an executive income protection policy as a business expense, but the benefit is then paid to the company and taxed as it passes to you as income. Take accountancy advice on which structure suits you.
Yes, though some insurers ask for a minimum trading history — often 12 months of accounts. Others will underwrite contractors on day-rate evidence or a signed contract. Because criteria differ widely between insurers, this is one of the areas where using a broker makes the biggest practical difference.
A regulated adviser knows which insurers treat sole-trader profit, dividends and day rates most favourably — and will match the deferred period to your reserves.
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