Your own boss? Best not get sick

Self-employment: nobody looks after the freelance operator, so he must look hard at insurance cover

Self-Employment brings a great deal of freedom to anyone who is prepared to start a business, but that freedom is not without cost.

Employees of big companies can typically expect pay if they are off sick, normally for six months, a "death in service" payout to their family if they die during their working lives (not just while at work) and a generous pension if they make it to retirement age. The self-employed receive none of this. The simple fact is that if it is your business and if you cannot work, you do not get paid.

And frequently the state does less for people who work for themselves: class 2 (self-employed) national insurance contributions do not entitle claimants to the Job Seeker's Allowance, merely Income Support.

The financial services industry can insure most, if not all, the risks faced by the self-employed, but cover is not cheap. For example, depending on age, policies to cover you against serious illness (called "critical" illness) or permanent disability typically cost between pounds 25 and more than pounds 100 a month. Given such costs it is tempting not to bother.

Having savings can go some way to mitigate the risks, but there can be unforeseen problems. If a sole trader dies or falls ill, for example, it might be difficult to unlock money tied up in the business. In a partnership, there is the added question of keeping the business running, and supporting the surviving partners.

Most self-employed people also have some protection in the form of invoices that they have issued, but have not been paid.

But for anyone with dependants, life insurance should be a priority. Fortunately this is a competitive market. But before you know it you may start to see the logic of other insurance.

"Death and critical illness are the same thing," says John Joseph, a financial adviser, whose firm John Joseph Ltd specialises in ill-health insurance. "If you have a stroke or die, your business is going to go down the pan. Furthermore for most people of working age illness or accidents are more of a threat than death."

Life insurance can be arranged through an existing pension plan, so giving tax relief on the premiums at an individual's highest rate. Cover for accidents or sickness is readily available through brokers and directly from insurers, although it is worth checking the definitions of being unable to work to see if they are appropriate to the self-employed.

Permanent health insurance (PHI) is a popular recommendation of financial advisers. It offers to pay a proportion of an individual's earnings, normally 50 per cent, if they cannot work through ill-health, for as long as they are unable. PHI policies do not always suit the self-employed, however. Most have a delay before they start to pay out of at least a month. The self-employed have overheads, so it is important for the policy to pay out as soon as possible. Usually, policies need a track record of earnings too, which does not help start-up businesses. And some policies will only pay out if you are too ill to do any work of any kind, rather than your normal occupation.

Critical illness insurance is a simpler option, as benefits are based on a lump sum. Generally, critical illness cover is cheaper than PHI, but it is more restrictive. The lump sum would be far less than the total payments from a PHI policy to someone who fell ill early in their working life.

One other area to consider is payment protection insurance for business loans. While payment protection policies for private debts, such as credit cards, will often in effect exclude the self-employed (by only paying out on bankruptcy, for example), business debts can be covered.

q Next week: Mortgages for the self-employed

Sport
The giant banner displayed by Legia Warsaw supporters last night
football
News
i100(and it's got nothing to do with the Great British Bake Off)
News
news
Sport
footballPremiership preview: All the talking points ahead of this weekend's matches
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
Angelina Jolie with her father Jon Voight
people
Arts and Entertainment
Tulisa as a judge on the X Factor in 2012
tvLouis Walsh confirms star's return
Life and Style
fashionClothes shop opens on Bill Clinton Boulevard in Pristina
Voices
The Ukip leader has consistently refused to be drawn on where he would mount an attempt to secure a parliamentary seat
voicesNigel Farage: Those who predicted we would lose momentum heading into the 2015 election are going to have to think again
Arts and Entertainment
Cara Delevingne made her acting debut in Anna Karenina in 2012
film Cara Delevingne 'in talks' to star in Zoolander sequel
News
i100
Life and Style
life
News
Melissa and Joan Rivers together at an NBC event in May 2014
peopleDaughter Melissa thanks fans for 'outpouring of support'
Life and Style
tech
Finacial products from our partners
Property search

A student's guide to financial survival: You don't have to drown in debt at university

Fresh from A-level delight, the moment does not have to be soured by students resigning themselves to thousands of pounds worth of debt in three years' time. Rob Griffin sees how to pass the university challenge

'Dismal' eurozone data sparks concerns

European Central Bank chief Mario Draghi is under pressure to launch promised stimulus before the EU slides further
Love but not marriage: property is one area where cohabiting couples are in danger of losing out

How couples can protect their financial interests when cohabiting

People who simply live together cannot assume they have the same rights to each other's assets as spouses or civil partners. Michelle McGagh sees how they can protect their financial interests

India could be jewel in the crown for investors

With a new government and an ambitious prime minister, the country offers the prospect of strong returns. But there may be hiccups ahead, warns Simon Read

Child Maintenance Service to replace Child Support Agency - but is it better?

Reforms to the vexed question of child support payments by absent parents mean extra charges for both sides. Neasa Macerlean reports

Barclays's new life insurance heralds a revolution on the high street

The new product marks a shift towards 'clear, straightforward and standardised' banking products, says Simon Read

How to protect your assets if the stock markets begin to head south again

Are you worried about your portfolio? Nick Paler asks fund managers and investment insiders for advice
Fuel poverty campaigners united in criticising the delays in helping those in fuel poverty

Plans to tackle fuel poverty are slammed by campaigners

Charities and action groups believe that the Government's proposals are woefully inadequate
Sell it with flowers: competition is 'intense' for homes with outside spaces

Gardens add a tenth to the value of your home

A London estate agent yesterday put a price on having a garden. David Pollock of Greene & Co reckons it can increase a property's value by a tenth.

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Project Manager - Pensions

    £32000 - £38000 Per Annum Bonus, Life Insurance + Other Benefits: Clearwater P...

    Test Manager - Banking - Yorkshire - £450 per day

    £400 - £500 per day: Orgtel: Test Manager - Banking - West Yorkshire - £400-£5...

    SAS Developer - DI Studio - Banking

    £450 - £500 per day: Orgtel: SAS Developer, Chester, Banking, DI Studio, £450-...

    Recruitment Consultants - Banking & Finance

    £20000 - £30000 per annum + OTE £40 - £50K first year: SThree: SThree Group an...

    Day In a Page

    Ukraine crisis: The phoney war is over as Russian troops and armour pour across the border

    The phoney war is over

    Russian troops and armour pour into Ukraine
    Potatoes could be off the menu as crop pests threaten UK

    Potatoes could be off the menu as crop pests threaten UK

    The world’s entire food system is under attack - and Britain is most at risk, according to a new study
    Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

    Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

    Seoul's plastic surgery industry is booming thanks to the popularity of the K-Pop look
    From Mozart to Orson Welles: Creative geniuses who peaked too soon

    Creative geniuses who peaked too soon

    After the death of Sandy Wilson, 90, who wrote his only hit musical in his twenties, John Walsh wonders what it's like to peak too soon and go on to live a life more ordinary
    Caught in the crossfire of a cyber Cold War

    Caught in the crossfire of a cyber Cold War

    Fears are mounting that Vladimir Putin has instructed hackers to target banks like JP Morgan
    Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years

    Salomé: A head for seduction

    Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years. Now audiences can meet the Biblical femme fatale in two new stage and screen projects
    From Bram Stoker to Stanley Kubrick, the British Library's latest exhibition celebrates all things Gothic

    British Library celebrates all things Gothic

    Forthcoming exhibition Terror and Wonder: The Gothic Imagination will be the UK's largest ever celebration of Gothic literature
    The Hard Rock Café's owners are embroiled in a bitter legal dispute - but is the restaurant chain worth fighting for?

    Is the Hard Rock Café worth fighting for?

    The restaurant chain's owners are currently embroiled in a bitter legal dispute
    Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival

    In search of Caribbean soul food

    Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival
    11 best face powders

    11 best face powders

    Sweep away shiny skin with our pick of the best pressed and loose powder bases
    England vs Norway: Roy Hodgson's hands tied by exploding top flight

    Roy Hodgson's hands tied by exploding top flight

    Lack of Englishmen at leading Premier League clubs leaves manager hamstrung
    Angel Di Maria and Cristiano Ronaldo: A tale of two Manchester United No 7s

    Di Maria and Ronaldo: A tale of two Manchester United No 7s

    They both inherited the iconic shirt at Old Trafford, but the £59.7m new boy is joining a club in a very different state
    Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

    Robert Fisk: No victory for Israel despite weeks of devastation

    Palestinians have won: they are still in Gaza, and Hamas is still there
    Mary Beard writes character reference for Twitter troll who called her a 'slut'

    Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

    The Cambridge University classicist even wrote the student a character reference
    America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

    America’s new apartheid

    Prosperous white districts are choosing to break away from black cities and go it alone