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Critical illness cover – what microbusiness owners need to know

As a freelancer or contractor you will have no sick pay (SSP) entitlement or employer-provided sickness benefits to fall back on if you are sick. So, what happens if you fall ill and cannot work?


One option is income protection insurance that can protect you from any unforeseen shortfall in income. See the details about income Protection insurance here. However this isn’t your only choice.


State Benefits


When ill, freelancers may be able to claim Employment Support Allowance (ESA) from the Government which is currently £73.10 per week if you are aged over 25. You can claim this for 13 weeks then there may be further entitlements.


However, if you are a limited company contractor the Government basically expect you to pay yourself SSP for 28 weeks, but you may qualify for ESA after this period. Before April 2014 small companies could recover some or all of SSP payments from the Government, but this is now not possible. It is also possible that those with their own limited company could continue to draw a salary or dividends from their company if this is possible


Critical Illness Cover


In 2010 research by Aviva found that two thirds of the population have no form of financial protection if they die or become critically ill. This is thought to be because of the common beliefs that:



  • Insurance providers find any excuse not to pay out for Critical Illness Cover. However, in 2014, several providers released figures showing payouts of over 90% of claims. In 2011 the average payout on a critical illness policy was £69,000.

  • State support, employers’ help and their own savings would be sufficient. However, Research by Legal & General in 2013 found that the average UK household has enough savings to survive financially for just 18 days before being totally reliant on state benefits, friends or family if the main breadwinner’s income is lost.

  • It won’t happen to me! However, findings from Cancer Research in 2015 found that 50% of the UK population will develop cancer at some point in their lives, however advancements in treatments mean that 50% of cancer patients are predicted to survive 10 years or more after diagnosis.


Therefore if you should become seriously ill, and the condition continues for a long period of time, how will you and your dependents cope financially?


Income Protection Insurance is there for when you can’t work because of an accident or illness, and usually offers a monthly lump sum and covers a wide range of illnesses and conditions. Statistics show you are 4 times more likely to be off work with a serious illness than die, before you retire.


Critical Illness Cover is there when serious illness means lifelong impairment which may make work completely impossible or much less possible than before. Critical insurance provides you usually with a lump sum of money if you are diagnosed with certain illnesses or disabilities (often heart attack or stroke, loss of arms or legs, some types of cancer, organ transplants, and diseases like Multiple Sclerosis, Alzheimers, or Parkinsons).


It is there for when you are extremely ill (even if you recover fully or partially in time) or totally disabled. It may not provide cover for some diseases and may not cover you for illnesses which either you or a member of your family has had before. The cost of the insurance is quite high and is not refundable if you don’t ever need to use it.


Do you need it?


You may not if:



  • You have similar insurance combined with another insurance policy, for example a life insurance policy or a policy that goes with your mortgage

  • If you have substantial savings or enough earnings from another member of the family

  • You can take early retirement (perhaps on ill-health grounds)

  • A regular monthly income would be more appropriate (any lump sum received from a Critical Illness payment may be used for anything, e.g. to pay off your mortgage, buy medical treatment, adapt your home)


What you need to check in the policy before you sign up:



  • What conditions it will pay out for and at what stage of the condition (these vary between insurers) – read the small print carefully

  • How much it will pay out

  • Will it only pay out a lump sum or is a monthly income an option

  • Will it cover spouses and children

  • Will you need overseas cover if you spend time abroad or plan to retire overseas

  • Occupations seen as ‘risky’ can increase premiums drastically


You need to fully disclose the extent of your medical history when applying for the insurance (as this is a common reason for claim rejection).


Another option – you can find information about making Personal Injury Claims for injuries sustained while working.


Please note that we cannot recommend insurers or comment on individual claim issues.


If you are an Employer and need ongoing professional help with any staff/freelance issues, or a Contractor/Freelancer/Employee with a complicated employment related problem, then talk to Lesley at The HR Kiosk – a Human Resources Consultancy for small businesses – our fees are low to reflect the pressures on small businesses and you can hire us for as much time as you need.


Please note that the advice given on this website and by our Advisors is guidance only and cannot be taken as an authoritative or current interpretation of the law. It can also not be seen as specific advice for individual cases. Please also note that there are differences in legislation in Northern Ireland.

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