income protection insurance for contractors

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Introduction -what is UK Income Protection insurance for contractors?

What is income protection for contractors and should you take it out? When we look at how income protection works, this is an insurance policy that provides you with a substitute income if you’re unable to perform your contracting work because of injury or illness. Most importantly, contractor income protection insurance (UK) normally pays out until you retire, you pass away or you return to work.

However, there is also short-term income protection for contractors, where the policy pays out for a maximum of one or two years. Certainly, this shorter-term income protection policy is often cheaper.

Income protection for contractors, otherwise known as contractor sickness insurance, was formerly called permanent health insurance. However, with this new type of policy, there are many benefits of Income Protection Insurance for contractors.

To get an Income Protection quote or find out more about IP, simply click on the button below

Initial thoughts

Why should you consider income protection insurance?

If you are an employee, your employer will normally provide some form of sickness insurance. However, as a self-employed contracting professional, you do not automatically have any form of sickness insurance in place. Indeed, this is where limited company income protection insurance for contractors can give you peace of mind.

If you’re unable to work, due to an injury, accident or illness, you can reasonably expect to lose income. As a result, you may face financial difficulties.

Income protection insurance for contractors is a vital insurance policy for all UK contractors. Basically, it provides you and your family with financial security if you’re unable to work. Therefore, without contractor sickness cover you will be reliant on claiming Employment and Support Allowance (ESA).

How much does ESA pay?

So how much protection does ESA give you? Frankly, not a lot! Basically, according to the Citizens Advice Bureau if you get either new style ESA or contribution-based ESA, when you first claim, you’ll usually get:

  • £84.80 each week if you’re aged 25 or over
  • £67.20 each week if you’re aged under 25

About 3 months after your claim, the DWP will assess you. Therefore, depending on how much your condition affects you, they’ll put you in either the ‘work-related activity group’ or the ‘support group’. However, which group you’re in affects how much ESA you get.

If you’re in the work-related activity group you’ll get £84.80 each week and in the support group, you’ll get £117.60 each week. As a result. this is hardly enough to pay even the basic weekly bills!

Now, let’s compare ESA with contractor income protection insurance.  As a result, with income protection insurance for contractors, you will receive a replacement income of up to 70% of your normal income. In conclusion, the income you receive is tax-free, so you can expect to receive a similar income after taxes are taken into account.

Income Protection -basic considerations for contractors and directors

Do you need UK income protection insurance?

So, do you need income protection insurance? Well, consider how you would financially cope if you were unable to work for an extended period of time. Consequently, without contractor income protection insurance, how long would your savings really last?

Most limited company contractors set aside sufficient savings to cover lean periods and expenses for a few months. However, have you considered the financial impact if you were unable to work due to a long-term illness that lasted six months or even six years? 

Now let’s consider who relies on you financially. Undoubtedly, this will include your family, any children or employees.

Income protection insurance explained

What are the benefits of Income Protection Insurance for UK contracting professionals? Basically, there are many benefits when you take out income protection insurance for contractors. Most importantly, these benefits include:

1 Regular income You will receive part of your taxable income if you are unable to work when you are ill or injured due to an accident. Certainly, the income is usually between 50% and 70% of how much you pay yourself.
2 Premium Guaranteed Therefore, what you pay each month for your policy will not change even if you claim and then go back to work. Furthermore, you do not pay while you claim either.
3 Continued support The policy will pay out until your medical condition is such that you are able to work again. Therefore, if you cannot go back to work, the policy will continue to pay out until you either retire, pass away or the policy term ends*.
4 Everything’s covered When we consider how income protection cover works, it covers you for all illnesses or accidents, which means that you are unable to work. Therefore, it is about your ability to do your job, not your illness. As a result, this policy is not like other personal insurance policies.
5 Tailored to you The contractor income protection (UK) policy will fit with your income and outgoings. Therefore, you can be confident that you are always in the clear and will meet the payments that you need to.
6 Financial Security No matter what happens in the future, Income Protection will ensure you and your family will be financially secure. To sum up, you will not be out of pocket if you are out of action.
*Please note that this is dependent on the level of benefit taken.

Key facts around UK income protection insurance

What does self-employed or income protection insurance for contractors include? 

Income protection for self-employed contractors (with their own company) provides you with a regular income if you’re unable to work due to an accident, illness or injury. Above all, you can choose how much cover you need, though we always recommend speaking to a UK contractor financial specialist. Furthermore, you can cover up to 70% of your income, before taxes. Indeed, this will include salary, dividends and sometimes bonuses.

What contractor income protection does not cover? 

If you become redundant, you won’t receive any income. Likewise, if your injury is self-inflicted, or the result of misuse of alcohol or drugs, you won’t receive any income. However, apart from that, income protection will pay out in most circumstances for UK contracting professionals. Nevertheless, please make sure to read the key features document first.

How much UK income protection insurance cover do I need?

The level of contractor protection depends not so much on how much you earn each month, but on how much you spend every month. Therefore, please take your average monthly outgoings and add on any other regular commitments such as topping up your savings, pension commitments etc and this will let you know broadly the level of cover you require. Once again, we recommend that you discuss your specific requirements with an income protection expert that truly understands UK contractor finances.

How much does contractor income protection cost? 

There are many factors that determine the cost of income protection for contractors. Indeed, this will include how much cover you require and policy choices such as deferral period, your age and health and specific risks attached to your occupation.

Other considerations

What’s the best policy for contractors? 

The best income protection policy for contractors will depend entirely on your personal circumstances. However, although there are many income protection calculators online these should only be used as a generalised guide. They do not ask sufficient questions to fully assess your unique needs and obligations.

What other insurance should UK contractors consider?

Besides income protection insurance for contractors, there are some other financial products which are specifically for contractors. Therefore, as well as contractor income protection insurance, you may wish to consider these in the future:

  • Private medical insurance.
  • Keyman insurance.

Get the right advice!

In a perfect world, you will look to use a provider who has experience in the UK contracting market. In short, they’ll understand how a professional with their own contractor limited company works and show you a suite of contractor-friendly insurance products.

We’ve partnered with Broadbench, income protection experts which deal with a selection of income protection providers. Most importantly, this will help you decide and choose an income protection insurance for contractors policy which can be beneficial for several reasons:

Experience Broadbench has been partnered with us for over a decade and has a wealth of experience in the field of contractor insurance. Indeed, this experience can help ensure that you are getting the best coverage for your needs and budget.
Expertise They are experts in the field of contractor finances, and they can provide you with the most up-to-date information and advice on the different types of policies available. In addition, they will show you the benefits and limitations of each, and how to compare policies.
Tailored Solutions They will take the time to understand your business and personal needs. As a result, they can provide you with a tailored solution that best suits your requirements, budget and goals.
Cost-effective They can help you find cost-effective policies and negotiate better deals with insurance providers. Consequently, this can save you money in the long run.
Time-saving Working with Broadbench can save you time by handling all the research, comparison and negotiation on your behalf.

How to obtain a quote for income protection insurance for contractors

Using trusted experts like Broadbench can help ensure that you are getting the most appropriate income protection advice for your needs, at the best possible price, which can save you both time and money in the long run. Indeed, you can get a quote or to find out more about your health insurance options.

Download their Guide to Insurance for further information on Income Protection for directors and contractors.

Therefore, simply fill in the form below, and the team will get right back to you with further details.

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Frequently Asked Questions

Generally, income protection insurance will pay you a regular income if you cannot work due to sickness or disability. Income protection insurance for contractors UK works on a similar basis and all conditions will be explained as part of the application.

In theory, you can take out as many Income Protection policies as you wish. However, the key point here is not the number of policies but the total level of cover. Income protection insurance for contractors UK is a policy that protects your contracting income and will pay out in an event of a genuine claim.

If you need to claim on your contractor income protection policy in the future there is a process to follow. You can contact the insurance provider with your policy details and claim information.

If the policy is paid by you personally there is no tax to pay on the payout. If your business pays the premium then the payout is received by your business and subject to taxation.

Frequent searches: Income protection for contractors, Income protection insurance contractor

Published On: January 4th, 2024 / Categories: Finances, Finances post, Financials /

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  1. 슬롯총판 November 12, 2023 at 11:07 am - Reply

    Your writing style is engaging and easy to follow. The flow of ideas in this blog post is seamless, making it an enjoyable read. Looking forward to more from you!

    • contractoradviceuk November 12, 2023 at 12:13 pm - Reply

      Many thanks, Toto.

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