If you cannot work, what comes in?

The gap, stated plainly

An employed person who cannot work usually has two things: whatever their employer pays, and then Statutory Sick Pay, which is a modest weekly amount for a limited number of weeks. It is not much, but it is something, and it arrives automatically.

If you are a sole trader or a partner in a business, you are not entitled to Statutory Sick Pay at all — there is no employer to pay it. If you run a limited company and pay yourself a salary through PAYE, you can qualify for Statutory Sick Pay on that salary — but only at the statutory rate, which on a small director's salary is small. Dividends do not count. Other support may be available, including New Style Employment and Support Allowance, depending on your National Insurance record and circumstances, and Universal Credit, which is assessed using household income, savings and other eligibility criteria.

One more thing worth being clear about: income protection pays out if illness or injury stops you working. It does not pay if the work dries up.

So the question is not really "should I insure my income". It is "how long could I actually last, and how long might I need to?" Everything else follows from the difference between those two numbers.

Why this lands harder after an adverse-credit mortgage

Two things are usually true at once for the people I work with. The mortgage costs more than the advertised rates, because the credit history priced it that way. And the savings that might have carried a bad quarter went into the deposit.

Add self-employment to that and the buffer people assume they have often is not there. It is not a dramatic situation. It is simply a smaller margin than they think, and most have never sat down and worked out what the actual number is.

What decides whether it is worth it

• How long you could genuinely keep paying. Not the optimistic answer — the real one, counting savings, a partner's income and what family would realistically do.
• The waiting period you choose. Cover normally starts paying after a set number of weeks, and the longer you are prepared to wait, the less it costs. If you could manage three months, you are buying a different and cheaper thing than someone who could manage three weeks.
• What counts as "cannot work". Policies differ on whether that means your own occupation or any occupation you are suited to. For a tradesperson this is the most important sentence in the document.
• Your health now. Underwriting is on health and occupation, not on your credit file — one of the few things here a CCJ does not complicate.
• Whether your company already does something. Directors sometimes have arrangements they have forgotten about.

When I would tell you not to bother

If you have a partner whose income comfortably covers the mortgage on its own, a serious amount in savings, or you are close enough to clearing the mortgage that a few months would not threaten it, then the honest answer is that you are already covered by arithmetic and do not need a policy.

I would rather say that and keep you as a client than sell you a premium you resent in two years.