Protection When You Go Self-Employed
Going self-employed is usually planned carefully on the money side and not at all on the protection side.
People model the day rate, the tax, the quiet first quarter and the accountant's fee. What rarely makes the spreadsheet is that an employer was quietly providing several things free of charge, and all of them stop on the same day.
None of it is noticeable while you are well. That is exactly the problem: the gap opens the day you leave and only announces itself at the worst possible moment.
The short answer
Leaving employment removes sick pay, death in service and any group cover on the same day, and most people do not notice because nothing feels different until something goes wrong. The practical move is to arrange your own income protection and life cover before the last PAYE day rather than after, because you are insuring against a gap that opens immediately.
What this changes
- Company sick pay stops, and for many people that was the only thing standing between illness and no income
- Death in service stops, which for an employee is often the only life cover they had
- Any group income protection or private medical cover provided by the employer stops
- Statutory Sick Pay is not available to you as a self-employed person
- Nobody keeps paying you while you are not working, so a short illness becomes a direct income loss
- Your income is about to become variable, which changes how much cover you can evidence
The bit people miss
The part people get wrong is the timing, not the decision. Protection is underwritten on your health and your circumstances when you apply, so the easiest moment to arrange it is while you are still employed with a settled salary and a clean recent history. Once you have left, your income is new and unproven, and if anything happens to your health in the meantime it becomes part of a medical history. Arranging it a month before you leave rather than six months after is the single most useful thing to do with this stage.
What Your Employer Was Quietly Paying For
Most employees have more protection than they realise and have never seen a document describing it.
Occupational sick pay, death in service at a multiple of salary, sometimes group income protection and sometimes private medical cover are all common, all provided at no visible cost, and all tied to the job rather than to you. They do not transfer, they cannot usually be bought as an individual, and they end on your leaving date.
It is worth finding out exactly what you have before you resign rather than afterwards, because that tells you the size of the hole you are about to create. Your HR portal or your contract will say, and if it does not, ask.
Arrange It While You Still Look Like An Employee
There is a practical advantage to sorting this out before the last payslip, and it is about evidence rather than eligibility.
When you apply for cover, the insurer looks at your health and at your income. As an employee with a settled salary, your income is simple to show. In the first months of self-employment it is new, it varies, and the records are thinner. How different insurers handle that varies and is not something to guess at, which is exactly why it is worth a conversation rather than an online form.
The health side matters more. Anything that develops between now and whenever you get round to it becomes part of your medical history, and a history is harder to insure around than a clean slate. Nothing about waiting improves the position.
What usually fits, and why
The direct replacement for the sick pay you just gave up. It pays a monthly amount if illness or injury stops you working, which is the risk that went uninsured the moment you left PAYE.
Replaces the death in service you no longer have. For a lot of employees that group benefit was their only life cover, and it does not follow them out of the door.
Pays a lump sum on diagnosis of a serious condition. Useful when there is no employer to hold the job open and no paid leave to fall back on.
Common questions
Do I get Statutory Sick Pay if I am self-employed?+
No. SSP is for employees, so going self-employed removes it along with any company sick pay you had. That is why income protection moves from a nice idea to the main thing worth arranging: there is no longer anybody paying you while you cannot work.
Should I sort cover before or after I leave my job?+
Before, if you can. Your health and income are assessed when you apply, and as an employee your income is settled and simple to evidence. More importantly, anything that happens to your health while you put it off becomes part of your medical history. Waiting does not improve anything.
I had death in service. Can I keep it?+
No, it ends with the employment. Group benefits belong to the employer's scheme rather than to you, and there is normally no option to continue them personally. For a lot of employees that scheme was their only life cover, so it is worth replacing deliberately rather than discovering the gap later.
My income will be unpredictable at first. Can I still get income protection?+
It is worth asking rather than assuming. Insurers differ in how they look at self-employed income and in what they want to see, and that is not something to generalise about. We can go through your situation and tell you what is realistic for you rather than giving you a rule that may not apply.
Is it worth it if I am only self-employed for a year or two?+
That depends on whether you could cope with no income during that period. The risk is not reduced by being temporary. Most cover can be stopped when you no longer need it, so a short period of self-employment does not commit you to decades of premiums.
Cover that often goes with this
The gaps we most often find sitting next to this one.