Self-employed income protection insurance 

If you are self-employed, you can take out an income protection insurance policy to provide you with a financial safety net if illness or injury prevents you from working. Not only will it pay a regular monthly payment until you’re able to return to work, it could also enable you to keep your savings intact to pay for business essentials such as outstanding invoices, stock or equipment, to help your business stay solvent.

While there are many benefits to income protection, keep in mind that if you work for yourself you may need to overcome a few extra hurdles when buying this type of insurance. For example, income protection providers will assess whether you have a steady income and will expect to see consistent evidence of this. This can be more difficult if you are self-employed and your income fluctuates each month.

Insurers will also want to know if you work in a high-risk or manual job where the chances of an accident may be higher – a scaffolder, for instance. If that’s the case, you may find it harder to buy income protection or you may have to pay higher premiums.

When you’re self-employed, it’s tempting to focus on the day-to-day running of your business. But it’s important to consider how you would support yourself financially if you were unable to work due to ill health or injury. Income protection can provide cover for a range of conditions, including serious illnesses such as cancer, musculoskeletal issues and mental health conditions.

Ask yourself whether you have adequate savings to see you through a prolonged period off work and whether using money you’ve squirrelled away to pay for everyday bills would be the best way to spend it?

Keep in mind that if you are self-employed:

• You won’t receive sick pay. Unlike an employee who would receive statutory sick pay from their employer while they are unable to work, if you are self-employed you aren’t entitled to sick pay. It means you may have to rely on your savings or financial support from your partner or family to see you through these difficult times.
  

• Government support is unlikely to be enough to meet your living costs. While you may be entitled to state benefits such as Employment Support Allowance (ESA) or Universal Credit, these payments are likely to fall short of your usual earnings. For example, ESA pays up to £92.05 a week, which for most people won’t be enough money to cover everyday living costs.
  

• Income protection won’t cover business expenses. An income protection policy is designed to help cover your personal living costs, not business overheads such as rent, utilities, stock or unpaid invoices. However, by helping with personal expenses it can reduce the need for you to dip into your savings so you can keep your business ticking over until you are able to return to work.
  

• Financial uncertainty can add to your stress. Being self-employed is stressful at the best of times, so knowing that you would receive a regular income if you can’t work can give you peace of mind and some degree of financial stability.

What is self-employed income protection insurance?

There aren’t specific income protection policies created solely for self-employed people. The purpose is the same as it is for employees: to replace a percentage of your income with a regular monthly payment if you are unable to work as a result of illness or injury. However, there are differences in how insurers assess how much income you can protect.

If you are self-employed, income protection can give you the breathing space to continue paying your mortgage or rent and household bills while you are unwell. And with income protection, it doesn’t have to be a one-off claim – you can claim as many times as you need during the duration of the policy.

Income protection works in much the same way as it does for employees. Insurers will typically cover between 50% and 70% of your monthly income before tax.

The key difference for self-employed income protection is how your income is assessed and evidenced. For employees, insurers usually rely on recent payslips, along with documents such as a P60 or P11D to work out how much they will pay you when you make a claim.

However, self-employed income can fluctuate from year to year, making it more complex to assess. To account for this, insurers often calculate your average earnings over a longer period, commonly the last three years.

The exact proof of income that you will need to provide if you are self-employed can differ depending upon the insurer and how long you have been self-employed for, so make sure that you understand what documentation you may need to supply.

If you’re a sole trader, insurers will generally base your cover on a percentage of your net profit before tax. You may be asked to supply tax calculations and copies of the Self Assessment tax returns you’ve submitted to HMRC.

While the core features of self-employed income protection will be the same as for a policy if you are employed, you must review the options under the lens of how they may impact you as a sole trader or freelancer.

In particular, you’ll need to decide on the length of the policy – which can be short- or long-term:

With short-term income protection, you can usually expect the insurer to provide a monthly sum for a limited period of one, two or five years if your claim is successful. 

In contrast, long-term income protection will provide monthly payments for ill health or injury for a more indefinite period, which could mean until you return to work, reach your chosen retirement age or you die.

Some options may be of particular interest if you are self-employed, including the following:

• Definition of incapacity: If you choose ‘own occupation’ cover to define the level of incapacity for when income protection payments kick in, it will offer you more  protection. This is because the insurer will pay out if you can’t perform your particular job rather than if you can’t carry out another suited occupation or any role. If you were a bricklayer and had this level of income protection, you wouldn’t be expected to switch to a desk job, for instance. As this option provides wider protection, it is usually more expensive. 
  

• Deferment periods: You’ll need to set a deferment period when you take out a policy. This is a pre-agreed waiting time claimants will have between making their claim and receiving their first payment, which typically range from four to 104 weeks. The longer you’re prepared to wait, the cheaper your monthly premiums. 
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  As you won’t receive statutory sick pay to support you before your income protection payments begin a shorter deferment period may make financial sense. To cater for this some providers offer a seven-day deferment if you are self-employed, and one insurer even allows you to receive an income from the first day you’re ill or injured, provided you’re unable to work for three days or more.
  

• Starting off with lower payments: Managing the cost of monthly premiums can be a challenge for start-ups or sole traders in the early stages of their career. One option for people in this position is a policy that offers lower initial premiums that rise each year. For example, some insurers have low start income protection policies which may suit self-employed workers just starting out that have a limited budget for income protection at the outset.

What won’t income protection cover if you are self-employed?

A self-employed  income protection policy won’t cover:

• your full income
• business costs
• the cost of work drying up while you’re off sick;
• self-inflicted injuries and substance abuse; and
• any pre-existing medical conditions that may be excluded on your policy

How much income protection do you need when you’re self-employed?

To work out how much income protection you may need think about what level of cover would allow you to pay for essentials such as mortgage or rent, household bills, childcare and daily essentials. Keep in mind that the percentage you’ll receive is of your pre-tax earnings, which brings it closer to your actual take-home pay. But remember that the higher the percentage of your gross salary you sign up for, the higher your monthly premiums will be.

As outlined above, the cost of income protection depends on the type of self-employed work you do – whether it is considered a dangerous job, for example – the percentage of salary insured, the length of the policy, deferment period and the definition of disability you choose. But insurers will also consider:

• Age: Premiums will be higher the older you are.
• Medical history: Expect to pay less if you are in good health. 
• Lifestyle: You can expect to pay more if you are a smoker, drink heavily, are overweight or participate in high-risk sports.
• Type of cover: You can opt for cheaper level cover that stays the same throughout the policy or pay more for increasing cover that rises annually in line with inflation.

The table below shows the average cost of an income protection policy for a self-employed builder that would pay a monthly benefit of £2,290 up to a retirement age of 65, after a range of deferment periods. The figures are based on a non-smoker and show guaranteed monthly premiums.

What other insurance policies should the self-employed consider?

When you’re thinking about buying income protection, take the time to weigh up other insurance products that could be beneficial to you. These include:

Life insurance

Life insurance will protect your loved ones financially in the event of your death. Your beneficiaries would receive a tax-free lump sum that  can be used to pay the mortgage, childcare costs, debts, funeral costs and everyday expenses. 

Health insurance‍

Private health insurance is worth considering if you’re self-employed  as it can help you access treatment more quickly. Without private health insurance long NHS waiting times may force you to take extended time off work and negatively impact your business.

Critical illness cover

Critical illness cover provides a tax-free lump sum payment if you are diagnosed with certain illnesses, depending on their severity, to help pay your mortgage, rent and household bills. Illnesses covered include cancer, stroke and heart attack. Critical illness cover can be taken out as a standalone product or as part of a life insurance policy. 

Public liability insurance

This will protect you from claims if you were to injure or kill a member of the public, or cause damage to their property, during the course of your work.

Whether you decide to take out income protection if you are self-employed depends on your personal and professional circumstances, but if you can afford it the benefits can be invaluable.

Income protection makes sense for many self-employed people because it replaces lost earnings when nothing else does. If you are self-employed and rely solely on your earnings and don’t have substantial savings to fall back on, income protection could offer a financial lifeline. Another benefit is that you can claim as many times as you need it while your income protection policy is in place.

But it’s also worth bearing in mind the few disadvantages: if you are older, premiums will be higher; pre-existing medical conditions may not be covered; you may lose means-tested benefits once your insurer starts paying you; and unless you can afford a short deferment period, you’ll have to wait several weeks to be paid.

You can find out which insurers might suit your needs in our guide to the best income protection insurance in 2026.