In short, no. One of the main disadvantages of self-employment is that you no longer receive sick pay or paid holidays. So, what can you do to protect yourself against the impact of an accident or ill health? In this post, I’ll outline the Government support available (hint: it’s not much) and explain some of the alternatives available.
What benefits do I get if I’m sick?
If you’re self-employed as a sole trader, you aren’t entitled to Statutory Sick Pay (SSP). Directors of limited companies can opt to draw SSP, but it would come from your own capital. ((In some instances, you can reclaim the cost from the Government. This depends on how your payroll is set up and is something for your accountant to advise on.)) Instead, you can claim the lesser-known Employment Support Allowance (ESA).
To be eligible for ESA, you need to have made National Insurance contributions. What you receive is partly dependent on your age and how many children you have, but the standard payment is currently £73.10 per week. You’re obliged to undergo a work assessment and then you are assigned to one of two groups: a work-related activity group where you’re interviewed about your job-seeking efforts, or a support group for those limited by disability. Failure to participate in the groups can result in benefit sanctions.
A successful claim for ESA means you can claim additional benefits, such as Support for Mortgage Interest (SMI).
Unless you lead a very modest lifestyle, ESA won’t be enough to cover your expenses. Let’s look at the alternatives.
Critical Illness Cover
Hopefully, you already have an emergency fund to keep you going for at least a few months. Most of us, though, would struggle to remain financially afloat in the event of a serious medical diagnosis. Critical Illness Cover (CIC) is an insurance policy that pays out a specified tax-free amount if you’re hit by a life-limiting illness such as cancer, stroke, or heart attack. The payout could help you pay off your mortgage, adapt your home, or make provision for dependents.
The cost depends on your age, lifestyle, and amount of cover.
Of course, these policies pay out only in extreme circumstances. For more common illnesses, you’d need income protection.
Income Protection Insurance is a policy that provides you with a guaranteed monthly sum if you’re unable to work for medical reasons. You can usually only insure up to 65% of your gross income, so payments would be slightly less than your net salary. This can be a good option to ensure your monthly outgoings are covered until you’re well enough to resume work.
There’s an important caveat for self-employed people. Some insurers would need two years’ accounts to prove your earnings. This would be tricky if you’re just starting out. If you have a limited company and pay yourself a small salary and a larger dividend, you should check that the insurer is covering your total income, and not just the salary element.
As income protection can be expensive, work out the minimum you’d need to cover your main outgoings. You could also opt for Short-Term Income Protection (STIP). As the name implies, it’s time-limited and therefore cheaper.
Obtaining critical illness cover and income protection can prove a significant monthly outlay. It’s important, therefore, to factor this into your business costs and how much you’re charging clients. If you’ve recently left a job to become a freelancer, you should consider the benefits you’ve sacrificed and which of those you need to replicate.
Everyone’s situation is different. Have a good long ponder about how you’d cope if you were unable to work for an extended period. As a freelancer, you’re far more exposed, so you need to think seriously about protection.
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