Can I get insurance to cover illness as a sole trader?
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I decided to start my own self-employed consultancy business last year and all is going well. However, I’m aware that if I were to fall ill, I wouldn’t be able to work and would get no sick pay. Can I get insurance to cover this? I am a sole trader, not a company.
Douglas Bridges of Smith & Pinching responds:
The lack of sick pay is certainly one of the drawbacks of being self-employed. There are two types of insurance cover that could help: income protection and critical illness cover.
Income protection provides a regular amount to replace some or all of your income for as long as you are unable to work. The key to qualifying for support is 'capacity'. If you are sufficiently incapacitated for you to be unable to work, you may be able to make a claim. Income protection insurance will cover both physical and mental health problems. If you have pre-existing medical conditions, it would be wise to check if these are excluded before signing up.
Deciding what level of replacement income is appropriate can be a challenge for someone who is self-employed, especially if your income varies hugely from month to month. Some providers have specific policies for the self-employed and may base the benefits on a percentage of your average income, for example.
Income protection insurance is usually set up to kick in after a deferred period which can be anything from four weeks to a couple of years. For employed people, it’s normal to align it with your employer’s sick pay policy, but as a self-employed person, you may want to time it according to your emergency reserves. The policy can be set up to provide extra payments if you are hospitalised, or if you become terminally ill.
Critical illness cover is a different type of insurance. It provides a single pay-out when you have been diagnosed with one of a specific list of conditions, at a severity specified in the policy. This means that if your illness isn’t on the list, or hasn’t reached the specified level of severity, it won’t pay out. However, it can be useful in providing a cash injection at a time when your finances are most stressed. Both types of policy can sometimes include access to support services to give medical advice and to help you during your recovery.
As a final note, you may also want to consider private healthcare. Private healthcare often provides faster treatment and so a quicker return to work. I suggest you take independent financial advice before deciding on the level of cover you want to adopt. Not surprisingly, the higher the cover, the more expensive the premiums, so it is a case of balancing the cost and the benefits.
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Any opinions expressed in this article do not constitute advice.
For more information, please visit www.smith-pinching.co.uk