Accident and Sickness Cover for the Self-Employed
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What is the point of Accident and Sickness Cover? Well, as a self-employed individual this is potentially one of the most vital insurances you could have. An Accident and Sickness policy provides a replacement of your monthly income should you be unable to work through illness or injury. As a self-employed individual you are entitled to no statutory sick pay and should you fall ill, you could really struggle to make ends meet.
If you are unable to work you may be eligible for Employment and Support Allowance (ESA). The amount you may receive depends upon your age, starting at £56.80 per week for the first thirteen weeks. Following this you may be eligible for between £100.15 or £106.50* per week, but this will depend upon additional circumstances such as any savings you have.
What can I cover myself for?
As a self-employed individual you can take out an Accident and Sickness policy that will protect a portion of your monthly income should you be unable to work. Accident and Sickness insurance offers a short-term policy benefit of between 12 and 24 months, upon the point of a successful claim.
Accident and Sickness policies are often an option for individuals who have significant medical disclosures, as the applications do not require any medical underwriting. This means that the policy can be much cheaper than an Income Protection policy if you have a declarable medical condition. However, you must be prepared that at the point of a claim any pre-existing medical conditions are excluded from your Accident and Sickness policy.
You can take out an Accident, Sickness and Unemployment policy when you are self-employed but this is often discouraged as the policies come with poor claim definitions. In order to make a successful Unemployment claim your company would need to cease entirely, with clear debts causing your company to wind down.
How much of my income can I insure?
You can insure yourself for between 50-65% of your taxable income (before income tax), to a maximum of £2,000 per month; one insurer now offers a benefit up to £5,000 per month. At the point of application you will not need to provide any proof of your earnings, but you will need to provide evidence of your annual income in order to claim on the policy. This will probably be a copy of your tax returns.
It is important that you are truthful as to your earnings as you can only ever claim for 50-65% of your taxable income. Should you insure yourself for 90% of your annual income you will find that your benefit is capped at 50-65%. This means that you would have been paying higher premiums for a higher monthly benefit that you could not possible claim for; overpayments made like this are not refunded by the insurer.
What is the cost?
The cost of Accident and Sickness insurance for the self-employed varies depending upon your occupation, sum assured, length of claimable period and the deferment that you have chosen. Accident and Sickness Cover is one of the few insurances available that does not take into account your smoker status.
The deferment period that you chose defines the amount of time that must pass from you being unable to work, to when the policy pays out. The longer the deferment you chose the cheaper the policy would be, but as you are self-employed a shorter deferment is recommended due to you not having statutory sick pay. Accident and Sickness policy deferment periods are termed as 30 days back to day 1, 60 days back to day 31, 90 days back to day 61 and 120 days back to day 91. The smaller the deferment period you have the more expensive the cover is.
A 28 year old domestic plumber who is wanting to protect £1,200 of his regular monthly income over a 12 month claim period, could secure cover for:
| Deferment Period | Policy Premiums** |
|---|---|
| 30 days back to day 1 | £11.51 |
| 60 days back to day 31 | £9.81 |
| 90 days back to day 61 | £8.12 |
| 120 days back to day 91 | £6.91 |
The same person wanting to increase the claim period to 24 months could secure cover for:
| Deferment Period | Policy Premiums** |
|---|---|
| 30 days back to day 1 | £30.36 |
| 60 days back to day 31 | £28.20 |
| 90 days back to day 61 | £24.84 |
As you can see from these examples there is not a great difference between the policy premiums and deferment periods. With the self-employed receiving no sick pay and the small difference between the costs, it is recommended that you opt for the smallest deferment period that your budget allows for.
*www.gov.uk
**Premiums are based upon research conducted on the 15th November 2013 Premiums quoted are for illustrative purposes only, actual premiums will be dependent on individual circumstances.
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