Income Protection 

Lack of savings puts two million self-employed at risk

Lack of savings puts two million self-employed at risk

Almost two million self-employed people in the UK are vulnerable to financial shocks because they are unable to save any money, research has shown.

A rerport titled Income Roulette, a study of debt, savings and protection among 9,000 people by insurer LV, revealed four in 10 (41 per cent) self-employed people can’t afford to save any money each month and a further one in 10 (11 per cent) save less than £50.

Furthermore, a third (33 per cent) couldn’t survive for more than three months if they lost their income.

The biggest barrier to saving among the self-employed was found to be fuel bills (62 per cent), followed by debt (38 per cent).

Self-employed people are particularly vulnerable to financial shocks because they do not have access to employers’ benefits such as sick pay, but income protection can help if they are unable to work due to accident, illness or disability.

Yet just 4 per cent of self-employed people in LV's research said they had income protection, compared to a national average of 11 per cent, with four in 10 (42 per cent) mistakenly believing that they were not eligible for it.

Almost four in 10 (37 per cent) said they thought income protection would be too expensive, even though cover of £1,000 a month could cost less than £10 a month.

Although state benefits are available, claiming can often be a difficult process, with the employment and support allowance claim form running to 60 pages and the weekly payout amounting to just £80.

Justin Harper, head of protection policy at LV, said: “Government and industry have a duty to improve the financial resilience of the self-employed.

"We believe that an income protection policy can play an important part in increasing resilience and is one of the best ways for the self-employed to protect themselves against a financial crisis. 

“By having a conversation about protection with clients, advisers can ensure more people in the UK are equipped to tackle financial blows.”

Barry Pappin, director of protection brokerage Vita, said: “A myriad of reasons stifle the uptake of income protection, including a lack of awareness, misconceptions and virtually no self-initiation from customers to protect what is arguably their biggest asset – their income.  

“However, as advisers, we can make a real difference in ensuring that as many of our customers as possible have this valuable cover in place.  The opportunity is huge and there’s no shortage of relevant product solutions from providers.  

“But rather than trying to solve the income protection gap overnight, I believe as advisers we can all start by taking responsibility for making sure that our advice and sales processes are optimised to help increase the number of income protection policies being recommended and put in place.”