Why sole traders need income protection

As a sole trader, your income stops completely if you can't work. Unlike employees, you don't receive:

• Statutory sick pay (SSP) - £109.40 per week for employees
• Company sick pay schemes - often full pay for weeks or months
• Employer benefits - health insurance, rehabilitation support
• Paid time off to recover
• Job security while you're ill

Income protection is especially important for sole traders because:

• Your business income stops if you can't work
• Business expenses continue even when you're not earning
• You may need to pay others to cover your work
• Recovery takes longer when you're worrying about money
• Your business may fail if you're off work for months

How income protection works for sole traders

Income protection for sole traders pays a monthly income if you're unable to work due to illness or injury. Here's how it typically works:

1. You choose your cover amount: Usually 50-70% of your gross income (based on your accounts or tax returns)
2. You select a deferred period: How long you wait before payments start (typically 1-52 weeks)
3. You become unable to work: Due to illness or injury covered by your policy
4. Deferred period passes: You remain unable to work for the full waiting period
5. Monthly payments begin: Continue until you return to work, recover, or reach policy end date

What does income protection cover for sole traders?

Income protection typically covers you if you can't work due to:

For sole traders, it's especially important to check:

• Whether the policy covers your specific occupation
• If it pays out for partial incapacity (working reduced hours)
• Whether it includes proportionate benefit (if you return part-time)
• If business overheads can be covered separately
• What definition of incapacity applies (own occupation vs any occupation)

How much does sole trader income protection cost?

The cost of income protection for sole traders depends on several factors:

• Your age (older = higher premiums)
• Your occupation (risk level affects price)
• Coverage amount (% of income you want to protect)
• Deferred period (longer wait = lower cost)
• Smoking status (smokers pay more)
• Health conditions
• Payment period (short-term vs until retirement)

Example monthly premiums for a sole trader earning £30,000/year (covering £1,500/month, 13-week deferred period, cover until age 65):

Sole Trader Income Protection Costs (£30,000/year salary, £1,500/month cover, 13-week deferred, cover until age 65)

Low risk = office-based, Medium risk = trades with some physical work, High risk = construction, manual labour

Ways to reduce costs:

• Choose a longer deferred period (26 or 52 weeks)
• Select short-term payment period (1-2 years) instead of full-term
• Reduce coverage amount to 50-60% instead of 70%
• Improve your health (stop smoking, lose weight)
• Pay annually instead of monthly (usually 5-10% discount)

How to choose the right policy for sole traders

When comparing income protection policies as a sole trader, consider these key factors:

1. Prove your income: You'll need 2-3 years of accounts or SA302 tax returns. Insurers base coverage on your average earnings.
2. Choose your deferred period carefully: How long can you survive without income? Factor in savings and any support from family. Longer waits mean lower premiums.
3. Ensure 'own occupation' cover: This pays out if you can't do YOUR specific job, not just any job. Essential for skilled trades and professionals.
4. Check for proportionate benefit: Allows you to return part-time and still receive partial payments. Crucial for sole traders gradually rebuilding their business.
5. Consider business overhead cover: Some policies can cover ongoing business expenses (rent, utilities, insurance) even if you can't work.
6. Look for rehabilitation support: Many policies include occupational therapy, retraining, or workplace modifications to help you return to work sooner.

Getting quotes from multiple insurers can save you hundreds of pounds per year while ensuring you get the right cover for your circumstances.