Income Protection Insurance Self-Employed UK How Much Does It Cost
As a self-employed professional in the UK, you are the engine of your own success. You enjoy a level of freedom and autonomy that most employees can only dream of. But with that freedom comes a significant responsibility: you are also your own financial safety net. Unlike employees who benefit from statutory sick pay and often generous company sick pay schemes, if you can't work due to illness or injury, your income stops. Immediately.
This is a stark reality for the UK's 4.3 million self-employed workers. According to the Office for National Statistics, this vibrant group makes up a significant portion of the workforce, yet many operate without a financial buffer. An unexpected illness, a serious accident, or a mental health crisis could destabilise not just your personal finances, but the very business you've worked so hard to build.
This is where Income Protection Insurance steps in. It’s not just another insurance policy; for the self-employed, it’s arguably the most crucial financial product you can own. It's designed to pay you a regular, tax-free monthly income if you're unable to work, ensuring you can still cover your mortgage, bills, and living expenses while you recover.
But the most common question we hear is: "How much does it actually cost?" The answer isn't a simple figure. The cost of income protection is highly personalised, reflecting your unique circumstances. This guide will demystify the pricing, explore the key factors that determine your premium, and reveal practical strategies for securing robust cover that doesn't break the bank.
Key price drivers and ways to keep premiums under control
The premium you pay for income protection is not an arbitrary number. It is a carefully calculated assessment of risk based on a handful of core factors. Understanding these drivers is the first step towards controlling your costs. Insurers will meticulously evaluate your personal circumstances and the specific policy choices you make.
The main levers that influence your monthly premium are:
- Your Personal Profile: Your age, health, lifestyle (especially smoking status), and BMI.
- Your Occupation: The risks associated with your specific line of work.
- Your Policy Choices:
- The Level of Cover: How much income you want to receive each month.
- The Deferred Period: How long you can wait before the payments start.
- The Payment Period: How long the policy will pay out for each claim.
- The Definition of Incapacity: The policy's specific criteria for what it means to be 'unable to work'.
- The Premium Type: Whether your premiums are guaranteed to stay the same or can change over time.
By adjusting these levers, you can tailor a policy that fits both your needs and your budget. Let’s dive deeper into each of these components to see how they work and how you can use them to your advantage.
The Core Components: How Insurers Calculate Your Premium
Think of your income protection premium as a recipe, with each of the factors below being a key ingredient. The amount and quality of each ingredient determine the final result.
1. Your Age
This is one of the most significant factors. Simply put, the younger and healthier you are when you take out a policy, the cheaper your premiums will be. Insurers see younger individuals as a lower risk because they are statistically less likely to fall ill and make a claim.
By locking in a policy in your 20s or 30s with a 'guaranteed premium', you can secure a low price for the entire duration of the policy, potentially saving you thousands of pounds over the long term compared to someone taking out the same cover in their 40s or 50s.
2. Your Health and Lifestyle
Insurers will ask a series of detailed questions about your health. Honesty here is non-negotiable.
- Medical History: They will want to know about any pre-existing conditions, past surgeries, and your family's medical history. A chronic condition might result in a higher premium or an 'exclusion' for that specific condition, but it doesn't usually prevent you from getting cover for everything else.
- Smoker Status: This is a major rating factor. Smokers or users of nicotine products (including vapes) can expect to pay anywhere from 50% to 100% more than a non-smoker for the same cover. If you quit smoking, most insurers will re-classify you as a non-smoker after 12 months, which can slash your premiums.
- Alcohol Consumption: You'll be asked about your weekly alcohol intake in units. Excessive consumption is linked to numerous health problems and will increase your premium.
- Body Mass Index (BMI): Your height and weight are used to calculate your BMI. A very high or very low BMI can indicate a higher risk of health issues, which may be reflected in the price.
Taking proactive steps to manage your health can have a direct, positive impact on your insurance costs. At WeCovr, we believe in supporting our clients' long-term wellbeing. That's why, in addition to finding you the right policy, we provide our customers with complimentary access to CalorieHero, our AI-powered calorie and nutrition tracking app, to help you stay on top of your health goals.
3. Your Occupation
For the self-employed, this is a critical factor. Insurers group jobs into different 'occupation classes' based on the level of risk involved.
- Class 1 (Lowest Risk): Professional, administrative, or clerical roles with no manual work. Examples include accountants, graphic designers, and IT consultants. These occupations command the lowest premiums.
- Class 2: Roles with minimal manual work, such as a surveyor who occasionally visits sites or a sales manager.
- Class 3: Skilled manual workers who face a higher risk of injury. Examples include electricians, plumbers, and mechanics.
- Class 4 (Highest Risk): Heavy manual workers or those in hazardous environments. This could include scaffolders, roofers, or offshore workers. Premiums for these roles are the highest.
It's vital to be precise about your duties. A 'consultant' who works from a home office is a very different risk to a 'consultant engineer' who spends 50% of their time on construction sites. An expert broker can help you define your role accurately to ensure you aren't paying more than you need to.
| Occupation Class | Example Self-Employed Roles | Relative Premium Cost |
|---|---|---|
| Class 1 | Writer, Accountant, Business Coach | Lowest |
| Class 2 | Photographer, Estate Agent, Florist | Low |
| Class 3 | Plumber, Electrician, Carpenter | Higher |
| Class 4 | Roofer, Tree Surgeon, Scaffolder | Highest |
4. The Level of Cover (Benefit Amount)
This is the monthly, tax-free amount you would receive if you were unable to work. Insurers will typically allow you to cover between 50% and 70% of your gross (pre-tax) annual profit.
Why not 100%? This is to provide an incentive for you to return to work when you are well enough. It also accounts for the fact that the benefit is paid tax-free, whereas your earnings are taxed.
For the self-employed, calculating your income can be tricky, especially if it fluctuates. Insurers will usually look at your net profit over the last 1 to 3 years. It's important to have clear, up-to-date accounts (e.g., SA302 forms from HMRC) to prove your earnings.
5. The Deferred Period
The deferred period (also known as the 'waiting period') is the agreed time between when you first become unable to work and when the policy starts paying out. Common options are:
- 4 weeks
- 8 weeks
- 13 weeks
- 26 weeks
- 52 weeks
This is one of the most powerful tools for managing your premium. The longer the deferred period, the lower your monthly cost.
To choose the right period, ask yourself: "How long could my business and personal savings sustain me if my income stopped tomorrow?" If you have a solid emergency fund that could cover you for six months, choosing a 26-week deferred period could save you a significant amount of money compared to a 4-week period.
6. The Payment Period
This determines how long the policy will continue to pay out for a single claim.
- Short-Term Policies: These typically pay out for a maximum of 1, 2, or 5 years per claim. They are cheaper but offer limited protection. What if your illness or injury prevents you from ever returning to your job? A 2-year payment period would be woefully inadequate. These plans are sometimes sold as 'Personal Sick Pay'.
- Long-Term (or 'Full Term') Policies: This is the gold standard. These policies will continue to pay you a monthly income right up until a pre-agreed age, which is usually your planned retirement age (e.g., 60, 65, or 68). While more expensive, they provide comprehensive peace of mind against career-ending incapacity.
The vast majority of claims for conditions like musculoskeletal issues or mental health last for a few months. However, income protection is designed to be a safety net for the catastrophic scenarios that could last for decades. For this reason, we almost always recommend a long-term payment period.
7. The Type of Premium
How your premiums are structured over the life of the policy is a crucial choice.
- Guaranteed Premiums: The cost is fixed when you take out the policy and will not change unless you alter your cover. This provides certainty and is usually the best option, especially when you are young and healthy.
- Reviewable Premiums: The insurer can review and increase your premiums over time. They may do this based on general claims trends or their own business performance. They often start cheaper than guaranteed premiums but can become significantly more expensive in the long run.
- Age-Banded Premiums: These increase each year by a pre-set amount as you get older. They start very cheap but will become extremely expensive in your 40s and 50s, often forcing people to cancel their cover just when they need it most.
| Premium Type | Pros | Cons | Best For |
|---|---|---|---|
| Guaranteed | Predictable costs, budget-friendly | Higher initial cost than reviewable | Most people, especially those taking out cover when young. |
| Reviewable | Lower initial cost | Premiums can rise unpredictably, making them unaffordable later | Those on a very tight budget, with a plan to switch to guaranteed later. |
| Age-Banded | Very low starting cost | Becomes very expensive with age, lacks long-term affordability | Very short-term needs only; generally not recommended. |
Choosing guaranteed premiums is a cornerstone of a solid financial plan, protecting you from future price hikes.
A Closer Look at the Cost: Real-World Examples
To bring this all together, let's look at some illustrative examples of what a self-employed person might pay.
Important Disclaimer: These are estimates for healthy non-smokers with a full-term payment period and guaranteed premiums. Your actual quote will depend on your specific health, lifestyle, and detailed occupation duties. The best way to get an accurate figure is to get a personalised quote.
| Profile | Occupation | Benefit Amount | Deferred Period | Age to Cease | Estimated Monthly Premium |
|---|---|---|---|---|---|
| Sarah, 30 (Graphic Designer) | Class 1 (Low Risk) | £2,000 | 13 weeks | 67 | £25 - £40 |
| Tom, 45 (Plumber) | Class 3 (Higher Risk) | £2,500 | 8 weeks | 65 | £90 - £140 |
| Aisha, 38 (Management Consultant) | Class 1 (Low Risk) | £3,500 | 26 weeks | 68 | £65 - £95 |
| David, 28 (Personal Trainer) | Class 2 (Medium Risk) | £1,800 | 4 weeks | 67 | £45 - £70 |
As you can see, Tom the plumber pays significantly more than Sarah the graphic designer, even though he is claiming a similar benefit. This is due to his older age, higher-risk occupation, and shorter deferred period. Aisha can secure a high level of cover for a reasonable premium by opting for a long 26-week deferred period, reflecting a healthy emergency fund.
Smart Strategies to Lower Your Income Protection Premiums
Now that you understand the cost drivers, you can be proactive in managing them. Here are the most effective strategies to secure the cover you need at the best possible price.
1. Lengthen Your Deferred Period
This is the easiest and most impactful way to reduce your premium. Review your personal and business savings. How many months of expenses could you cover? Align your deferred period with this buffer. Moving from a 4-week to a 13-week period can reduce your premium by as much as 30-40%.
2. Prioritise 'Own Occupation' Cover
While this might not always be the cheapest option upfront, it provides the best value and security. The 'definition of incapacity' is a crucial piece of policy wording.
- Own Occupation: The gold standard. The policy pays out if you are unable to perform the material and substantial duties of your specific job. A self-employed web developer with a hand injury that prevents them from typing would be covered, even if they could work in a different role.
- Suited Occupation: The policy only pays out if you cannot do your own job or any other job you are suited to by way of your education, skills, and experience. This is less comprehensive.
- Any Occupation / Activities of Daily Living (ADL): The most basic and restrictive definition. It will only pay out if you are so severely incapacitated that you cannot do any work or perform several basic daily tasks (e.g., washing, dressing, feeding yourself). This level of cover should generally be avoided.
For any skilled professional, freelancer, or business owner, insisting on an 'Own Occupation' definition is paramount. It protects your specialist earning ability.
| Definition of Incapacity | When it Pays Out | Quality of Cover | Who it's For |
|---|---|---|---|
| Own Occupation | If you can't do your specific job. | Best | All professionals, skilled workers, and specialists. |
| Suited Occupation | If you can't do your job OR a similar one. | Good | A budget option, but with significant compromises. |
| Any Occupation/ADL | If you can't do any job at all or perform daily tasks. | Poor | Generally not recommended for income protection. |
3. Improve Your Health
If you're a smoker, quitting is the single biggest health-related change you can make to lower your premiums. After 12 months nicotine-free, you can be re-rated as a non-smoker. Similarly, managing your weight to fall within a healthy BMI range and moderating alcohol intake will also lead to better pricing.
4. Be Precise About Your Job Duties
Don't just state your job title. Provide a detailed breakdown of your day-to-day tasks. If you're a 'builder' but spend 80% of your time in the office managing projects and 20% on-site, you may qualify for a lower-risk class than someone who is on the tools 100% of the time.
5. Compare the Entire Market with an Expert Broker
This is perhaps the most important strategy of all. Insurers have different appetites for risk. One insurer might offer favourable terms to an electrician, while another might specialise in cover for doctors or IT contractors. One might be more lenient on a particular medical condition.
You won't know this by going to a single provider. An independent broker like WeCovr works on your behalf. We have access to all the major UK insurers and understand the nuances of their underwriting. We can compare policies and prices to find the most suitable and cost-effective solution for your unique self-employed circumstances, saving you both time and money.
Special Considerations for Company Directors
If you operate as a director of your own limited company, you have access to a particularly tax-efficient form of income protection.
Executive Income Protection
Instead of paying for a personal policy from your post-tax income, your limited company can pay for an Executive Income Protection policy.
- How it works: The company owns the policy and pays the premiums. If you, the director, are unable to work, the insurer pays the monthly benefit to the company. The company then pays this money to you via PAYE, deducting tax and National Insurance as it would a normal salary.
- The Key Benefit: The premiums paid by the company are typically treated as an allowable business expense, meaning they can be offset against the company's corporation tax bill. Furthermore, it is not usually considered a P11D benefit-in-kind, so there is no extra personal tax to pay.
This structure can make it a highly efficient way for company directors to secure cover. It protects both the individual's income and the business's bottom line.
Key Person Insurance
It's also worth distinguishing income protection from Key Person Insurance. While IP protects your income, Key Person cover protects the business from the financial fallout of losing you (or another critical employee) to long-term illness or death. The lump-sum or regular payout goes to the business to cover costs like recruiting a replacement, covering lost profits, or reassuring lenders. The two policies serve different but complementary purposes.
Income Protection vs. Other Policies
It's easy to get confused by the different types of protection insurance. Here’s how income protection stacks up against other common products.
- Critical Illness Cover (CIC): This pays out a one-off, tax-free lump sum if you are diagnosed with one of a list of specific, serious conditions (e.g., a certain type of cancer, heart attack, stroke).
- Difference: CIC pays a lump sum for a specific diagnosis. IP pays a monthly income for any illness or injury that stops you from working. You might be unable to work for a year with a severe back problem, which wouldn't trigger a CIC policy but would be covered by IP.
- Verdict: They work best together. Use the CIC lump sum for major costs like adapting your home or clearing a mortgage, and the IP income for ongoing monthly bills.
- Family Income Benefit (FIB): This is a type of life insurance. On death, instead of a lump sum, it pays out a regular, tax-free income to your family until the end of the policy term.
- Difference: FIB provides for your family if you die. IP provides for you and your family if you are ill or injured and cannot work.
- Verdict: You need both. One protects your family after you're gone, the other protects everyone while you're alive but unable to earn.
The Application Process: Honesty is the Best Policy
Applying for income protection involves completing a detailed application form. You will be asked about your health, lifestyle, occupation, and finances. It is absolutely essential that you answer every question truthfully and completely.
Withholding information, or 'non-disclosure', might seem tempting to get a cheaper premium, but it is a false economy. If you later need to make a claim and the insurer discovers you weren't truthful in your application, they have the right to void your policy and refuse to pay out. This would be a devastating outcome, leaving you with no cover precisely when you need it most.
Working with a broker can be invaluable here. We can guide you through the questions, ensuring you provide the information the insurer needs in the correct way, avoiding any accidental non-disclosure and smoothing the path to getting your policy on-risk.
In Conclusion: Your Most Valuable Asset
For the self-employed, your ability to earn an income is your single most valuable asset. It underpins your lifestyle, your family's security, and the future of your business. Leaving it unprotected is a financial risk that simply isn't worth taking.
The cost of income protection insurance is not a fixed price but a flexible figure that you have a great deal of control over. By understanding the key drivers—your health, your occupation, and your policy choices—you can build a robust, affordable safety net. Choosing a longer deferred period, insisting on 'Own Occupation' cover, and securing guaranteed premiums are the hallmarks of a smart policy.
Don't view income protection as just another expense. See it as a vital investment in your financial resilience and peace of mind. To understand exactly what it would cost for you, the next step is to get a tailored quote. Speak to an expert adviser at WeCovr. We can compare the whole market for you, explain your options in plain English, and help you secure the right protection for your self-employed future.
How much income can I cover as a self-employed person?
Is income protection insurance tax-deductible for the self-employed?
What if my self-employed income fluctuates a lot?
Do I need a medical exam to get income protection?
What happens if I change my occupation?
Can I get income protection if I have a pre-existing medical condition?
Related guides
Why life insurance and how does it work?
What is Life Insurance?
Life insurance is an insurance policy that can provide financial support for your loved ones when you or your joint policy holder passes away. It can help clear any outstanding debts, such as a mortgage, and cover your family's living and other expenses such costs of education, so your family can continue to pay bills and living expenses. In addition to life insurance, insurance providers offer related products such as income protection and critical illness, which we will touch upon below.How does it work?
Life insurance pays out if you die. The payout can be in the form of a lump sum payment or can be paid as a replacement for a regular income. It's your decision how much cover you'd like to take based on your financial resources and how much you'd like to leave to your family to help them deal with any outstanding debts and living expenses. Your premium depends on a number of factors, including your occupation, health and other criteria.The payout amount can change over time or can be fixed. A level term or whole of life policy offers a fixed payout. A decreasing term policy offers a payout that decreases over the term of the cover.
With critical illness policies, a payout is made if you’re diagnosed with a terminal illness with a remaining life expectancy of less than 12 months. While income protection policies ensure you can continue to meet your financial commitments if you are forced to take an extended break from work. If you can’t work because you’ve had an accident, fallen sick, or lost your job through no fault of your own, income protection insurance pays you an agreed portion of your salary each month.
Income protection is particularly helpful for people in dangerous occupations who want to be sure their mortgage will always be covered. Income protection only covers events beyond your control: you’re much less likely to be covered if you’re fired from your job or if you injure yourself deliberately.
Questions to ask yourself regarding life insurance
Just ask yourself:👉 Who would pay your mortgage or rent if you were to pass away or fall seriously ill?
👉 Who would pay for your family’s food, clothing, study fees or lifestyle?
👉 Who would provide for the costs of your funeral or clear your debts?
👉 Who would pay for your costs if you're unable to work due to serious illness or disability?
Many families don’t realise that life, income protection and critical illness insurance is one of the most effective ways to protect their finances. A great insurance policy can cover costs, protect a family from inheriting debts and even pay off a mortgage.
Many would think that the costs for all the benefits provided by life insurance, income protection insurance or critical illness insurance are too high, but the great news is in the current market policies are actually very inexpensive.
Benefits offered by income protection, life and critical illness insurance
Life insurance, income protection and critical illness insurance are indispensable for every family because a child loses a parent every 22 minutes in the UK, while every single day tragically 60 people suffer major injuries on the UK roads. Some people become unable to work because of sickness or disability.Life insurance cover pays out a lump sum to your family, loved ones or whomever you choose to get the money. This can be used to secure the financial future of your loved ones meaning they would not have to struggle financially in the event of your death.
If it's a critical illness cover, the payout happens sooner - upon diagnosis of a serious illness, disability or medical condition, easing the financial hardship such an event inevitably brings.
Income protection insurance can be very important for anyone who relies on a pay check to cover their living costs, but it's especially important if you’re self-employed or own a small business, where your employment and income is a bit less stable. It pays a regular income if you can't work because of sickness or disability and continues until you return to paid work or you retire.
In a world where 1 in 4 of us would struggle financially after just four weeks without work, the stark reality hits hard – a mere 7% of UK adults possess the vital shield of income protection. The urgency of safeguarding our financial well-being has never been more palpable.
Let's face it – relying on savings isn't a solution for everyone. Almost 25% of people have no savings at all, and a whopping 50% have £1,000 or less tucked away. Even more concerning, 51% of Brits – that's a huge 27 million people – wouldn't last more than one month living off their savings. That's a 10% increase from 2022.
And don't even think about state benefits being a safety net. The maximum you can expect from statutory sick pay is a mere £109.40 per week for up to 28 weeks. Not exactly a financial lifeline, right?
Now, let's tackle a common objection: "But I have critical illness insurance. I don't need income protection too." Here's the deal – the two policies apply to very different situations. In a nutshell:
- Critical illness insurance pays a single lump sum if you're diagnosed with or undergo surgery for a specified potentially life-threatening illness. It's great for handling big one-off expenses or debts.
- Income protection, on the other hand, pays a percentage of your salary as a regular payment if you can't work due to illness or injury. It's the superhero that tackles those relentless monthly bills.
Types of life insurance policies
Common reasons for getting a life insurance policy are to:✅ Leave behind an amount of money to keep your family comfortable
✅ Protect the family home and pay off the mortgage in full or in part
✅ Pay for funeral costs
Starting from as little as a couple of pounds per week, you can do all that with a Life Policy.
Level Term Life Insurance
One of the simplest forms of life insurance, level term life insurance works by selecting a length of time for which you would want to be covered and then deciding how much you would like your loved ones to receive should the worst happen. Should your life insurance policy pay out to your family, it would be in a lump sum amount that can be used in whatever way the beneficiary may wish.
Decreasing Term Life Insurance
Decreasing term life insurance works in the same way as level term, except the lump sum payment amount upon death decreases with time. The common use for decreasing term life cover is to protect against mortgage repayment as the lump sum decreases along with the principal of the mortgage itself.
Increasing Term Life Insurance
Increasing term life insurance aims to pay out a cash sum growing each year if the worst happens while covered by the policy. With increasing term life cover amount insured increases annually by a fixed amount for the length of the policy. This can protect your policy's value against inflation, which could be advantageous if you’re looking to maintain your loved ones’ living standards, continue paying off your mortgage in line with its repayment schedule and cover your children’s education fees.
Whole of Life Insurance
Whereas term life insurance policies only pay out if you pass away during their term, whole of life insurance pays out to your beneficiaries whenever this should happen. The most common uses for whole life insurance are to cover the costs of a funeral or as a vehicle for your family's inheritance tax planning.
Family Income Benefit
Family income benefit is a somewhat lesser-known product in the family of life insurance products. Paying out a set amount every month of year to your beneficiaries, it is the most cost-effective way of maintaining your family's living standards to an age where you'd expect them to be able to support themselves financially. The most common use would be for a family with children who are not working yet so are unable to take care of themselves financially.
Relevant Life Insurance
Relevant Life Insurance is a tax-efficient policy for a director or single employee. A simple level term life insurance product, it is placed in a specific trust to ensure its tax efficiency. The premiums are tax deductible and any benefit payable should a claim arise is also paid out tax free, which makes it an attractive product for entrepreneurs and their businesses.
Important Fact!
We can look at a more suitable option mid-term!
Why is it important to get life insurance early?
👉 Many people are very thankful that they had their life, income protection, and critical illness insurance cover in place before running into some serious issues. Critical illness and income protection insurance is as important as life insurance for protecting your family's finances.👉 We insure our cars, houses, bicycles and even bags! Yet our life and health are the most precious things we have.
Easily one of the most important insurance purchases an individual or family can make in their lifetime, the decision to buy life, income protection, critical illness and private medical health insurance can be made much simpler with the help of FCA-authorised advisers. They are the specialists who do the searching and analysis helping people choose between various types of life insurance policies available in the market, including income protection, critical illness and other types of policies most suitable to the client's individual circumstances.
It certainly won't do any harm if you speak with one of our experienced FCA-authorised insurance partner experts who are passionate about advising people on financial matters related to life insurance and are keen to provide you with a free consultation.
You can discuss with them in detail what affordable life, income protection, critical illness or private medical health insurance plan for the necessary peace of mind they would recommend! WeCovr works with some of the best advisers in the market.
By tapping the button below, you can book a free call with them in less than 30 seconds right now:
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WeCovr is an insurance specialist for people valuing their peace of mind and a great service.👍 WeCovr will help you get your private medical insurance, life insurance, critical illness insurance and others in no time thanks to our wonderful super-friendly experts ready to assist you every step of the way.
Just a quick and simple form and an easy conversation with one of our experts and your valuable insurance policy is in place for that needed peace of mind!