Employment comes with a quiet set of financial safety nets: statutory sick pay, employer pension contributions, life cover, sometimes group income protection. When you become self-employed, most of those disappear overnight: and it's easy not to notice until something goes wrong.
The sick pay gap
Employed workers are entitled to at least statutory sick pay, which from April 2026 is £123.25 a week (paid by the employer from the first day of absence, for up to 28 weeks). As a self-employed person, you receive none of this if illness or injury stops you working: you may be able to claim Employment and Support Allowance, but it's modest and not guaranteed. Income protection insurance is designed to fill this gap directly, paying a regular monthly benefit (typically up to around 60–70% of your earnings) for as long as you're unable to work, up to the policy's terms.
Choosing the right income protection
Two settings matter most. The deferred period is how long you wait before benefits start; with no employer sick pay behind you, a shorter deferred period may be worth the higher premium. And the definition of incapacity matters: an "own occupation" definition, which pays if you can't do your own job, is generally the strongest. Matching these to your savings and the nature of your work is where advice helps.
Life insurance and critical illness
Many employed people have death-in-service benefit through their employer: often around four times salary. Self-employed people have no equivalent. If you have dependants, a mortgage, or business partners who rely on you, a term life policy is a straightforward and often inexpensive fix, and can be written in trust so it pays out quickly and outside your estate. Critical illness cover adds a lump sum on diagnosis of a serious condition: particularly valuable if a prolonged illness would stop you trading and leave fixed costs to cover.
Private medical insurance
Waiting months for NHS treatment isn't just inconvenient if you're self-employed: it directly affects your livelihood. With NHS waiting lists still running at around 7 million in England, faster access to diagnosis and treatment can be the difference between a short break from work and a long one. PMI gives you a choice of consultant and quicker treatment for acute conditions, so you can get back to earning sooner.
If you have a business partner or limited company
If you run a limited company, some cover can be arranged through the business in a tax-efficient way: for example relevant life cover, which provides death-in-service style protection paid for by the company. If you have a business partner or co-director, partnership or shareholder protection can ensure the business can buy out a departing owner's share. These are worth exploring once your personal cover is in place.
Don't forget your pension
The loss of employer pension contributions is easy to overlook because it isn't an emergency: but it compounds over time. Setting up a personal or self-invested pension and contributing regularly helps replace the workplace pension you no longer have, with the same tax relief on contributions.
Where to start
You don't need everything at once. A sensible order of priority for many self-employed people is to protect their income first (income protection), then cover dependants and debts (life and critical illness), then add private medical cover and pension provision. The right mix depends on your commitments, your savings, and who relies on you.
The bottom line
Working for yourself brings freedom, but it also means you are your own safety net. Putting the right cover in place: starting with the income you'd struggle to replace: turns a potential crisis into a manageable setback. An adviser can help you prioritise based on your circumstances and budget.
