State benefits and the self-employed
As well as potentially missing out on sick pay from an employer, the self-employed do not qualify for statutory sick pay from the government.
Employees who are unable to work through short-term illness can claim £89.35 a week for up to 28 weeks, paid through their employer.
The self-employed have to rely on the Employment and Support Allowance (ESA), either individually or as part of Universal Credit (in areas where the new combined benefit has already been rolled out).
The ESA is means tested and the level of benefit can vary according to the age of the claimant.
Individuals will normally get the assessment rate for the first 13 weeks after their claim. This is usually paid at up to £73.10 a week for those aged 25 or over, and up to £57.90 a week for those aged under 25.
After that, if they’re entitled to ESA, they’ll be placed in one of two groups and will receive up to £73.10 a week in the work-related activity group, or up to £109.65 a week in the support group.
While it is not a workplace benefit, the way the new Universal Credit combined state benefit payment is set up also puts the self-employed at a disadvantage.
Employees receiving payments from an income protection (IP) policy would not see their statutory sick pay affected. However, anyone who is self-employed and claiming on an IP policy would see their state benefits reduced on a pound for pound basis due to the means testing element of the ESA and Universal Credit.
This complexity of state benefits and how they interact with protection is a bit of a minefield, but the costs involved and loss of state benefits through means-testing makes IP poor value for self-employed workers on lower incomes.
Protection purchasing decisions
With this in mind, what level of cover should the self-employed consider to protect themselves and their businesses should illness or accident make them unable to work?
The usual option of life cover, IP and CI are all appropriate for self-employed workers, although care must be taken over the interaction of state benefits with IP, particularly for lower earners.
Private medical insurance is also potentially of real benefit for the self-employed. As any absence due to sickness typically means the business is unable to generate any income, getting back to work as quickly as possible can be as important an issue as financial assistance while the client is unable to work.
