Guide to buying income protection insurance for UK Contractors


Everything You Need to Know about Contractor Income Protection Policy

Contractors rarely have a safety net to cover them if illness leaves them unable to perform. A company will pay a traditional employee if he or she is sick. Contractors, on the other hand, must draw on their savings to get the treatment they need, assuming they have enough savings in the first place.


Illness on the job is a big concern for contractors. It could turn their lives upside down. It can jeopardize their financial security. Fortunately, there is now a type of sick pay insurance for the self-employed that can effectively save them from financial hardship. We are talking about income protection insurance for Contractors.


What is Contractor Income Protection?


Also known as Executive Income Protection, contractor income protection is basically a type of sickness insurance that pays self-employed people a monthly benefit if they become too sick or injured to perform their duties. This insurance intends to give you the security necessary when you simply cannot work.


How does it work?


You will be paid a pre-agreed monthly amount during your illness. In the event of a serious illness, this insurance can also extend to your retirement. The amount of benefit you receive depends mainly on the income you were contracted to receive. The “deferred period” you choose also plays a significant role. The deferred period refers to the time interval before the insurance company begins paying you benefits.


Deferral Period Options


You have the option to choose your own deferment period. Typically, this period ranges from one month to a full year. However, there are also policies that cover you from the first day you become ill. These policies are ideal, especially if you have little savings.


You can also choose to pay for your IP policy as an individual or as a limited liability company. If you choose to pay as an individual, you do so with post-tax income. On the other hand, if you pay as a business, you can deduct the cost for tax purposes. Your company can consider it a business expense.


What is the importance of income protection insurance for contractors?


As we mentioned earlier, income protection insurance policies are truly a godsend. They provide contractors with the financial security they need in the event they become too ill to work.


Income protection insurance for contractors is important for the following reasons:

  •       As a freelancer, this policy can cover up to 80% of your monthly income. This includes your normal salary, pension, natural insurance contributions, and dividend payouts.
  •       If you have a partner, you can also cover their dividend distribution. However, the partner must not able to generate income for your business in your absence.
  •       You have the option to choose a waiting period before the insurance begins paying benefits, which can be up to one month.
  •       You get the privilege of protecting your income until you retire.
  •       It isn’t a P11D benefit. This means it is a tax-free benefit for independent contractors.


What are the benefits of income protection insurance?


There are many benefits to purchasing income protection for contractors. They are as follows:


1) Continuous income.


The most obvious benefit is the fact that you will continue to receive income even if you are unable to work due to illness. With this insurance, you will continue to receive up to 50-70% of your income in case of illness.


2) Tailored to you


These policies can be customized and adapted to your circumstances. You can shorten your waiting period by paying a higher premium. Can opt for a longer waiting period by doing the opposite. You can also opt for a policy that starts with favorable payouts at a young age and only increases as you age.


3) Your premium may be tax deductible.


Unlike many other personal insurance policies, the premium for income protection insurance can be tax deductible, as long as you pay it directly.


4) Uncomplicated claims procedure


The claims process for this insurance is as simple as can be. Simply contact your insurer, complete some paperwork and provide the required information.


5) Financial security for your whole family


Good insurance coverage will protect you until you can return to work. You do not have to rely on your savings to provide for yourself or your dependents.


How do you choose the best income protection provider for you?


When it comes to income protection for business owners, we recommend following these tips to find a provider that meets your needs;

  •       Choose a provider that has extensive experience in the contracting market. They should have a good track record working with contractors. They should have successfully settled claims made in the past.
  •       Opt for a contractor income protection policy that will cover you until retirement age.
  •       Make sure your policy specifically states that you will receive benefits if you can no longer perform the services you provide. The provider may claim that you are able to perform other work if that term is not clearly mentioned.
  •       Since dividends make up the majority of most contractors’ income, you should make sure that dividends are explicitly included in your insurer’s calculations.
  •       Finally, make sure your policy is inflation-protected.




Income protection insurance is extremely important for independent contractors if they want to protect themselves financially in the event of illness. Such policies can provide contractors with nearly 70% of their regular income. This enables them to cover their needs without having to deplete their savings.

Choosing a reliable provider is also important to ensure you get the most out of your income protection policy. This is where our services at Contractor Advise UK come in. We have extensive experience in this field and in-house expert financial advisors. They will help you find a policy that provides you with the financial security you need as a freelancer or independent contractor.