If you are self-employed and you cannot work tomorrow, what happens? This is a question most self-employed people have never seriously sat with. It is also the most important question Jack asks.
Self-employment comes with a particular kind of financial exposure that most people do not fully reckon with until something goes wrong. When you work for someone else, there is a layer of institutional protection between you and financial disaster: sick pay, employer pension contributions, death-in-service cover, and the general structure of being part of something larger than yourself.
When you are self-employed, you are that institution. And when the institution cannot work, no income comes in.
I want you to do something uncomfortable for a moment. Imagine you wake up tomorrow and your back has gone — properly gone, as in you cannot sit at a desk, you cannot drive to clients, you cannot lift anything. Or imagine you receive a cancer diagnosis that requires six months of treatment. Or you have an accident that means several weeks of recovery.
Now trace what happens to your finances. Week one: probably fine — you have some savings, maybe some work already in the pipeline. Week four: starting to feel uncomfortable. Week twelve: you are burning through whatever you had. Month six: the mortgage is becoming a real problem.
This is not a rare or extreme scenario. Long-term illness and injury affect millions of working-age adults every year. The Office for National Statistics regularly tracks the number of people who are economically inactive due to long-term sickness — and the numbers are significant. The question is not whether it could happen to you. The question is what your plan is if it does.
Employed workers who cannot work can claim Statutory Sick Pay from their employer for up to 28 weeks. Self-employed people are not entitled to SSP at all.
There are state benefits available to self-employed people who cannot work — primarily New Style Employment and Support Allowance (ESA), which requires you to have paid sufficient National Insurance contributions. The maximum current rate is around £130 per week. Whether that is enough to cover your mortgage, your bills, and everything else in your life, I will leave you to calculate.
To be clear: I am not criticising the benefits system. It exists for a reason and it provides genuine support for people who need it. But it was not designed to replace the income of a self-employed person, and it does not come close to doing so for most people.
Income protection insurance is the primary tool for addressing this risk. For self-employed people, it works slightly differently than for employed workers — and the definition of “unable to work” becomes particularly important.
For employed people, most policies will pay out if you cannot perform your own specific occupation. For self-employed people, the same applies — but it is worth being careful about the policy definition. Some cheaper policies switch to an “any occupation” definition after a period of time, meaning they will stop paying if you could theoretically do any job, even if you cannot do your job. A good adviser will steer you toward “own occupation” cover throughout.
Because self-employed income can vary significantly, you typically insure a proportion of your average earnings over the past year or two — up to around 60–70% of your pre-tax income. The policy pays out monthly, tax-free, from after the deferred period until you return to work or reach the policy's maximum term.
The cost depends on your occupation, your health, your age, and the deferred period you choose. A self-employed consultant in their 30s might pay £40–£80 per month for meaningful coverage. A manual worker will typically pay more, because the risk of injury is higher.
Income protection is the most urgent gap, but it is not the only one. Self-employed people often have no employer pension contributions going in on their behalf — so the responsibility falls entirely on them to build a retirement pot, usually through a personal pension or SIPP. This requires discipline, because when work is busy the temptation is to reinvest in the business; when work is quiet the temptation is to not contribute at all.
Life insurance is equally important for those with dependants. If you are the sole earner and you die, the financial impact on your family is immediate and severe. There is no death-in-service payout from an employer. A term life policy costs relatively little and provides enormous financial security.
The cumulative picture for many self-employed people I see is this: no employer sick pay, no SSP entitlement, no employer pension contributions, no death-in-service — and no personal protection in place either. It is an entirely exposed position. The good news is that it is fixable, and usually more affordably than people expect.
If you are self-employed and have never sat down to map out your financial exposure, a conversation with Jack is a straightforward way to do exactly that. No pressure — just clarity.