Self-employed? Is your family exposed?

Protection & insurance

New research has shown that millions of self-employed people are leaving their families financially exposed.

Over recent years, the number of people who are self-employed has increased significantly; with nearly five million of us working for ourselves (Source: ONS). But it seems most are making no provision should they be unable to work due to illness, a decision which could have catastrophic consequences for their loved ones.

The research, from Scottish Widows, found that:

  • Only 7% of self-employed people have Critical Illness Cover to protect them, and their family, if they become seriously ill
  • Four million self-employed people do not have a “back up plan” if they are unable to work
  • The families of self-employed people are disproportionately reliant on their income. 62% of self-employed workers’ households are reliant on one person’s income, compared with 52% of the average population

The research found that the consequences of failing to adequately protect themselves are stark:

  • 1 in 5 self-employed people said they would not be financially secure if they lost their income
  • 30% said they wouldn’t be able to rely on a single income
  • 12% didn’t know how they would pay their household bills if they were unable to work

“Mobile phone is more important”; really?

The research also revealed that for many self-employed people protecting themselves and their family was not a priority. Two thirds of self-employed people have no life insurance to repay their mortgage or provide an income for their family should they die.

Shockingly, twice as many people view a mobile phone as more essential that life insurance.

Reacting to the survey, Johnny Timpson, Protection Specialist at Scottish Widows, said: “Given the continued rise in the number of people who are self-employed in the UK today, this research unveils a worryingly uncertain picture for a significant proportion of the UK’s workforce. With so many families reliant on the income of self-employed people, it is absolutely vital that they have a back-up plan in place should the worst happen.”

He continued: “No one wants to think about disaster striking, but knowing that your family will not be left struggling will give you peace of mind and allow you to enjoy the many benefits that being elf-employed brings.”

“At a time when welfare reform is resulting in significant changes to benefits such as child and working tax credits, income-based job seeker’s allowance, income support and housing benefits for those renting and with mortgage, all of which are being replaced by Universal Credit and are relied on by many of the self-employed, families need to do all they can to protect themselves in the event that the unexpected happens.”

How can self-employed people protect themselves?

Self-employed people who take the decision to protect themselves, are, by extension, providing protection for their families and financial dependents.

Essentially there are three main types of protection available:

Life Cover: This pays out a set amount of money, usually a lump sum although it can be an income, if the person insured dies whilst the policy is in force.

The pay-out is often used to repay a mortgage and, if large enough, provide an on-going income to the family of the deceased person.

Life Cover is relatively cheap and simple to buy. It is rightly often seen as the minimum protection someone with family dependents should consider.

Critical Illness Cover: In common with Life Cover, Critical Illness Cover tends to pay a lump sum. But, they payment is paid on diagnosis of a serious illness, such as cancer, heart attack, stroke, MS etc, which is covered by the policy.

Each provider publishes a list of the illnesses they cover, which differ from insurer to insurer, making it important to carefully compare different options.

Whilst being more expensive than protection on death, with 1 in 2 people expected to get cancer during their life (Source: Cancer Research UK) Critical Illness Cover is important.

It is often taken out in conjunction with Life Cover, to protect, for example, a mortgage.

Income Replacement: This type of protection pays out an income should you be unable to work due to accident or illness for a prolonged period.

The definition of being unable to work differs from Critical Illness Cover, which makes consideration of both options important.

Where to start?

This is just a brief explanation of the types of cover available.

To the lay person the full list of options is bewildering and confusing, ultimately leading to the inability to make the right decisions. In some cases, it may completely put self-employed people off making any decision!

If you are self-employed and concerned that you and your family is financially exposed if you become ill or die, we would recommend consulting an independent financial adviser (IFA).

The IFA will be able to assess your circumstances, explain the pros and cons of each option and research the whole of the market to make sure you get the right cover for your needs.

We are here to help

If you are self-employed and would like to talk about protecting you and your family, pick up the phone and give Sarah or Bev a call on 0115 933 8433.