“The self-employed also need sufficient life insurance to cover any personally guaranteed loans. For sole traders with no separate business entity, business-related loans are personally guaranteed.
"Hence, in the event of death, lenders can seek repayment from the deceased’s estate. They may also target assets like cars or property to recoup the loan. This would naturally be distressing to a recent widow/widower.”
This sentiment is echoed by Alan Lakey, director of CI Expert: “IP is top of the list followed by life/CI cover and only once the essential components are in place should PMI be considered.”
Having ‘own occupation’ stipulated for IP is the easiest way to avoid complications and disputed claims for all workers, but this is even more important for the self-employed.
Mr Lakey says this is “essential” when considering the type of cover for self-employed clients.
“A ‘suited occupation’ definition enables the insurer to contend that he/she is capable of performing some other occupation - regardless of the fact they do not currently undertake it.
" An activity-based definition is a waste of money as the degree of disability required is so harsh that few can realistically claim. It is quite probable that the level of severity needed would result in a critical illness claim.”
Barriers to take up
Cost and awareness are often seen as the biggest barriers to better take up of protection among the self-employed.
According to Scottish Widows, almost 80 per cent of the self-employed consider a mobile phone to be essential expenditure, compared to 40 per cent who said life insurance is an essential cost.
Mr Telfer says the biggest barriers are cost, lack of transparency in the industry and lack of awareness of the need for cover.
He adds: “We have seen how the industry is evolving the proposition to make cover more affordable. Great steps have been taken to publicise the high proportion of claims that we pay. Education is key to helping the self-employed understand the risks they face.
"While the false perception of the scope of the welfare state exists, we need to be pro-actively engaging with self-employed people to ensure they understand the risks they face if they are unable to work.”
Lower cost options for cover
Lower cost of cover is usually reflected in lower levels of benefits that would be paid out, but lower cost options do still have a place in helping to provide some level of cover.
In addition to cover provided by insurance companies, the self-employed can also benefit from some low-cost cover from the Association of Independent Professionals and the Self-Employed (IPSE) – a trade body for the sector.
