Income protection when you're self-employed

When you work for yourself, nobody pays you while you are off sick. Statutory Sick Pay is only for people classed as employees, so a sole trader, a freelancer or a partner in a firm gets nothing from it. Income protection insurance is designed to fill that gap: it pays a monthly income, typically 50% to 65% of your earnings according to MoneyHelper, if illness or injury stops you working.

For self-employed people the hard part is usually not getting cover but proving income when you claim. Your earnings may go up and down, and the policy will have its own way of measuring them. This guide explains what changes when you are your own boss and what to check before you rely on a policy.

What you get from the state if you can't work

MoneyHelper notes that self-employed people get no sick pay but might qualify for state benefits. The main one is New Style Employment and Support Allowance (ESA). GOV.UK says you can apply if you are under State Pension age, have a health condition or disability that affects how much you can work, and have paid enough National Insurance contributions, usually in the last two to three years. Self-employment counts.

Current GOV.UK rates (2026/27) start at up to £95.55 a week if you are 25 or over, or up to £75.65 if you are under 25, during the first 13 weeks while your claim is assessed. You may also be able to claim Universal Credit instead of, or alongside, New Style ESA.

Put those weekly figures next to your monthly outgoings and the gap is usually clear. If you have moved from employment, remember that any death-in-service or sick pay benefits you had through your employer ended when that job ended, as MoneyHelper points out.

How income protection works for the self-employed

The basic product is the same as for employees, covered in our income protection guide. You pick:

• a benefit amount, usually a percentage of your earnings
• a deferred period, the time you must be off work before payments start; MoneyHelper says common options are 4, 13 and 26 weeks and a year, with longer waits costing less
• a definition of incapacity: own occupation, suited occupation or any occupation

With no employer sick pay, the deferred period is the stretch you fund yourself from savings. That makes the choice more personal than it is for an employee, who might simply match it to their sick pay.

The definition of incapacity matters too. Own occupation cover pays if you cannot do your own job. MoneyHelper says it is usually the most expensive but the most likely to lead to a successful claim. If your work is physical or highly specialised, the gap between "can't do my job" and "can't do any job" can be large.

Short-term policies

MoneyHelper also describes short-term income protection that pays for a fixed period, usually 12 or 24 months, and accident, sickness and unemployment cover tied to debts. It notes that many payment protection policies won't cover you if you are self-employed, part-time or on a temporary contract, so check eligibility carefully before buying one.

Proving your income at claim time

This is the part self-employed people most need to plan for. The Financial Ombudsman Service says insurers need evidence of your pre-disability earnings, and that if you are self-employed or in work with fluctuating income, you may need to provide evidence over a longer period than the policy sets out, so the insurer can calculate a fair average.

The Ombudsman also notes it has seen people declare a higher income than they really earn when buying a policy, hoping to claim on that figure later. That doesn't work: the claim is paid on the earnings you can evidence, so overstating income just means paying for cover you can't use. An inaccurate answer on an application can also give the insurer a remedy under the Consumer Insurance (Disclosure and Representations) Act 2012.

Practical points that follow from this:

• Keep your tax returns, accounts and bank records organised and accessible.
• Read how the policy defines "earnings" for the self-employed: profit, turnover, or something else, and over how many months or years.
• If your income changes a lot, ask the insurer how it would handle a claim after a bad year or a good one.
• If you are a company director, ask how salary, dividends and retained profits are treated. The answer varies by policy.

Tax on benefits

HMRC's guidance says benefits from a personal income protection policy are generally tax-free where you paid the premiums out of taxed income and got no tax relief on them. If a business pays the premiums, the tax position can be different, so ask an accountant before arranging cover through a company.

What changes the cost

MoneyHelper lists the factors as your age, your occupation, smoking, the percentage of income covered, the deferred period, the range of illnesses covered, and your health and family history. For the self-employed, the occupation you describe on the application matters: it is worth describing what you actually do day to day rather than just a job title, because an occupation-based incapacity test is applied to that work.

What to check in your policy

• Definition of earnings: for sole traders, partners and directors, and the period it is measured over.
• Evidence required at claim: which documents the insurer will ask for.
• Deferred period: whether your savings would last that long.
• Incapacity definition: own, suited or any occupation, and how your occupation is described.
• Business expenses: whether the policy offers any cover for ongoing business costs, or only personal income.
• Offset clause: whether benefits are reduced by state benefits or other income.
• Partial return to work: what happens if you can work reduced hours.
• Premium type: fixed or reviewable.
• Exclusions: general ones and any from underwriting.

When to talk to a regulated adviser

MoneyHelper suggests an independent financial adviser or specialist broker for income protection, noting that insurers use very different criteria and that specialist brokers can help people in jobs that standard policies do not cover. That can be particularly useful if your income is irregular or you work through a limited company. If a claim is refused, our guide to declined claims explains the complaint route. InsuredRight does not recommend products, but our free policy check can help you find the clauses above.

This guide is general information about how insurance works in the UK. It isn't advice and doesn't take your circumstances into account. Policies differ: your own policy documents are what count.