There are lots of perks to being self-employed. You can ‘be your own boss’, as they say, choose your own hours, and work from the comfort of your own home (or your favourite coffee shop). You can pause for a spot of yoga when you feel like it, achieve the holy grail of ‘work-life balance’, and – presumably – go on holiday at the drop of a hat.
But that’s the rose-tinted view, of course.
The reality is that being self-employed has many finance-related implications. Take holidays, for example; you don’t have to ask anyone’s permission to have them, or necessarily plan them too far in advance, but you do have to fund them – and you won’t be getting paid while you’re away.
Not only does being self-employed mean no holiday pay or sick pay, which you’d most likely have if you were employed under PAYE, but also that your finances in general can become a bit less predictable. This simply means needing to be a bit more savvy about managing them, making sure you’ve budgeted for a potentially irregular income so you’re able to tide yourself over when between jobs or contracts, and of course allowing for things like time off.
But accounting for illnesses or injuries is a bit tricker than accounting for holidays – because you don’t know when they’re going to happen or for how long. For self-employed people who suffer an illness or injury that leaves them unable to work for a long time, the financial consequences can be both immediate and long-lasting. This is especially true if you’re self-employed and also have:
- Financial commitments – like needing to pay your rent or mortgage, plus other bills and expenses that don’t stop if you’re unable to work
- Financial dependents – in other words, other people who also rely on your income (usually a partner and/or children)
The fact is: losing your income because of an illness or injury can make it difficult to keep up with the cost of life – whether it’s long-term back pain, periods of mental ill-health, a critical diagnosis, or a serious injury that stops you being able to work for a long time. Some may have enough of a financial cushion, savings, or someone else they could rely on financially while being unable to work – but for most, there’s a ceiling on how long they could cope. For others, the financial consequences could even be catastrophic.
This is where insurance products like income protection can help, providing the cover against illness and injury that the self-employed in particular can sometimes lack. You can either buy long-term income protection, which pays out for as long as you need (until the policy ends), or short-term, which pays out for a fixed amount of time (usually 1, 2 or 5 years). Short-term is the cheaper option, but obviously offers slightly less protection – so when buying cover, it’s often a case of weighing up how much you want to spend with how protected you want to be.
As outlined earlier, if you’re self-employed and working out whether or not you need income protection, the main factors to consider are what financial commitments and dependents you have. These will determine how much a prolonged period of being unable to work could affect you financially – and therefore whether getting covered is the right thing to do in your circumstances. For lots of self-employed people, simply having the peace of mind that a long-term illness or injury wouldn’t upset their finances is enough of a deal-breaker.