Why contractors need income protection
Contractors — whether operating through a limited company, as sole traders, or via umbrella companies — have no statutory sick pay beyond the basic entitlement and no employer to fall back on. If illness or injury prevents you from taking on contracts, your income stops immediately.
How income protection works for contractors
For contractors, IP benefit is typically based on:
- Limited company contractors: Based on salary drawn from the company — dividends are sometimes included, depending on the insurer and how they're structured
- Sole traders: Based on net profit from self-employment, averaged over the previous 1–3 years
- Umbrella company workers: Based on salary received through the umbrella
IR35 and income protection
IR35 status affects how your income is treated. If you're inside IR35 and receive a salary through your company, your IP benefit is based on that salary. Outside IR35 contractors typically have more flexibility in structuring their income — but this can make IP calculations more complex. A specialist adviser can help structure your cover correctly.
Deferred period for contractors
Contractors often choose shorter deferred periods (4–8 weeks) because they don't have sick pay. Others choose longer periods (13–26 weeks) to reduce their premium, relying on savings or a emergency fund to bridge the gap. Consider how long your savings would last without any income.
Own occupation vs any occupation
Always choose "own occupation" cover — particularly important for skilled contractors in specialist roles. This ensures the policy pays if you can't fulfil your specific contracting role, not just any form of work.
Frequently Asked Questions
Yes — but the benefit is typically based on salary drawn from the company. Some insurers also consider dividends. A whole-of-market adviser can find the most appropriate structure for your income profile.
Most contractors choose 4–13 weeks, depending on how long their savings would cover costs. A shorter deferred period means higher premiums but earlier payments if you can't work.