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Like a boss: Income insurance and rainy day funds for the self-employed

By Mike Narouei, Content Producer at Boring Money

24 Jan, 2019

Flying solo can be daunting, whether you’re circumnavigating the globe or becoming your own boss. First of all, you’re responsible for everything – from wooing new clients to chasing old invoices, filling up the coffers to emptying out the bins. You manage it, and might even find all that responsibility thrilling, but what would happen if you suddenly took ill and needed some time off? Did you remember to pack a parachute?

In the last of our ‘Like a boss’ series of money tips for the Annoyed Self-Employed (, we ask financial advisors for income-protecting backup plans. Here are their tips on insurance and rainy-day funds.

Make up for what you’re missing

“Working in an employed role, most people benefit from some sort of sick pay if they are unable to work due to illness or injury, and whilst this might not go far enough, the self-employed are at greater risk as they do not have this benefit.

“An income protection policy is a great way to cover a chunk of your earnings if you’re ever in this situation. You pay in while you work and the insurance company pays out when you can’t, and some of the most common causes for claims are back pain and depression. I would urge the self-employed to seek advice to find a suitable policy.”

– Krupesh Kotecha (, Financial Planner at Balance: Wealth Planning

What’s the difference between insurance products?

Income protection insurance: Aims to replace part or all of your usual income, paying out monthly if you lose your job through illness or injury. A pretty standard alternative to employee sick pay. Read more.

Critical illness cover: Pays out a lump sum if you’re diagnosed with a serious illness like cancer, heart attacks and strokes. It’s designed to pay off mortgages, alter homes for wheelchair use, and other big ticket items. Read more.

Life insurance: If you have a family that depends on your income, you can’t rely on the government to look after them once you’re gone. Instead, life insurance dishes out a lump sum or regular payments to keep them safe and sound. Read more.

Key person insurance: Covers the business for financial losses when a crucial member of staff dies or falls ill. If you’re self-employed, you’re probably better off with one of the previous insurance products.

Sort out your short-term safety net

“Research from IPSE shows for over 50% of self-employed people, irregularity of income is the main thing holding them back from financial security. So it’s important to have a healthy amount of cash to support you during the bad times. Ensure the amount of money in the bank is enough to cover any time off for a holiday or sickness.”

– Jon Greer (, Head of Retirement Policy for Quilter

“You need a short-term cash buffer so if the fridge breaks you’re not going to a doorstep lender or credit card with 27% APR. 3 months’ wages is the suggestion for an employed earner – maybe more for self-employed. Think about the costs you might come up against for things like a car breakdown or unexpected business expenses.”

– Steve Webb (, former Pensions Minister for UK Government

“Because of uneven cashflow and managing things like late payments it’s vital to ensure you have built up a secondary cash buffer. This should be separate to your ‘rainy day’ fund that is there for emergencies like when the roof blows down. This secondary cash buffer should be utilised to help pay for all the essentials when cashflow goes through its ups and downs. If you don’t have this is place or not sure how much you need consider setting up separate savings account that is easily accessible and try to save regularly into this to build up roughly 2/3 months of essential outgoings.”

– Krupesh Kotecha (, Financial Planner at Balance: Wealth Planning

We hope you’ve found our self-employment mini-series useful. If you missed the general tips ( or tax editions (, catch up now. Or for more self-employed financial advice – including business banking, mortgages and pensions – check out our brand new Annoyed Self-Employed ( learning path.

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This article can change and grow. If you’ve got a head for finance and think there’s something vital missing from our series that the self-employed need to know about, please send your tips to Flying solo’s more effective with help from your friends.