Critical Illness  

Self-employed risk losing £70k a year due to protection gap

Self-employed risk losing £70k a year due to protection gap

A lack of protection cover means the UK’s self-employed risk losing almost £70,000 a year if they are unable to work.

According to research by Scottish Widows, 93 per cent of the UK’s 4.8m self-employed workers have no critical illness cover to protect them in the event of long-term sickness absence.

Taking extended sick leave would cost the self-employed an average of £67,550 each a year, amounting to a national financial risk of more than £300bn annually, the provider said.

According to the Office for National Statistics, one in seven UK workers is now self-employed, meaning there are 4.4m without critical illness cover.

Johnny Timpson, protection specialist at Scottish Widows, said: “Self-employed workers put immeasurable amounts of time and money into getting their businesses off the ground, but our research reveals that they’re failing to protect their greatest asset - themselves.

"This is particularly concerning when you consider that this workforce has a more limited range of working-age welfare benefits.

“Self-employment and self-reliance go hand in hand, so it’s absolutely vital that these workers have a back-up plan in place should the unexpected happen, especially with so many of their families being solely reliant on their income.”

Four in 10 uninsured, self-employed workers (42 per cent) insist they don’t need critical illness insurance or don’t see it as a financial priority – despite 76 per cent of business owners or partners having no employees and no-one to cover for them should they fall ill and be unable to work themselves.

In addition, 50 per cent said they had not insured equipment that was crucial to running their venture, while 70 per cent had no life cover in place.

Yet the self-employed are also failing to ‘self-insure’, with almost half (47 per cent) having no other personal contingency plan in place, such as backup savings, should they fall ill.

The average self-employed worker only has enough personal savings to last an average of 9.2 months if they were unable to work, the research found.

More than a fifth (22 per cent) of self-employed people have a mortgage to pay, and recent changes to the support for mortgage interest benefit mean most would have to wait 39 weeks before receiving it instead of the previous 13.

Bob Riach, principal at Scunthorpe-based Riach Financial Advisers, said: “I think a lot of the reason [for the lack of critical illness and life insurance cover] is a lot of people don’t tend to go out of their way to arrange it. It has to be sold to them or advised to them.

“The only time they tend to come and request it is when there has been a death in the family or someone has had a critical illness in the family and made a claim on their insurance – then we get the enquiry.

“You have to sit in front of someone and put the facts to them. The majority take cover out when they take out mortgages. It is very rare they decline cover of some type.”