The size of the UK workforce is approximately 35 million. Of that number, more than 5 million are self-employed. Over 80% of osteopaths were self employed in 2019 [1], together with a significant percentage of dental hygienists. The overall percentage has doubled since the economic turbulence of the 1980s and the increase is highly likely to continue.

The Pitfalls of Self-Employment

It has many attractions, of which independence is one of the most compelling. However, the inverse of that is uncertainty. Employers use self-employed workers because it relieves them of the burdens of sick leave, holiday pay, national insurance and various fundamental employees’ rights. But for the self-employed it creates the potential of financial insecurity.

While under current labour laws, protections for the employed may be slight, for the self-employed they are effectively non-existent. You are already vulnerable to the possibility of jobs drying up because of cut-backs or a downturn. You’ll probably have allowed for this by building up a cushion of savings. But if you are injured or fall ill and cannot work, there is no one to hold the safety net. One day you’re earning and the next you’re not.

Let’s be honest: how many among the working population can genuinely claim to be free of financial commitments? Most of us are only a few pay cheques away from danger. For the self-employed it can be worse.

So if no one else is going to offer you a safety net, you must supply it yourself. If you’ve managed to build up savings, do you really want to erode them to pay the bills and the mortgage?

Make Your Own Safety Net

Income protection insurance is the perfect solution. The right policy will pay you a tax-free proportion of your average income and this will be in monthly payments over the course of a year or even 2. That gives you much more than a breathing space to recover from illness or injury. In most cases, it will cover you for even the slowest recovery.

Applying is relatively straightforward. You’ll need to decide how much coverage you need, either as a percentage of your normal income or some other fixed amount. Check the details of any policy for caps and age limits.

You’ll need to show proof of income, normally in the form of a year’s audited accounts although some insurers will work on an average of the last 3 years. You should be aware that most policies will include a deferred period, which is the time that must pass between the date you become unable to work and the start of the payments, a period agreed in the policy.

Within the standard terms of any policy, you have the freedom to set the level of cover, and it is advisable to aim for about 65% of your gross earnings after allowable deductions because your gross would be taxable whereas your insurance pay-outs are not.

Planning for the worst is never attractive but for the self-employed, it’s the only reliable way of keeping you safe and solvent in the event of illness or injury. It’s good to know that there is at least one uncertainty you can remove.