News & Articles

How Important is Critical Illness Cover for Sole Traders?

February 17, 2018

There are many benefits to being your own boss, including flexible hours, total control over profits and the ability to shape your business to exactly what you want it to be. However, sole traders also need to be aware of the increased risk that comes with the choice to go it alone.

Holiday pay, maternity pay, sick pay and many other benefits that we take for granted when employed by someone else do not come as part of the sole trader package. This means that sole traders must be aware of the potential loss of profits – or even the failure of their enterprise – in the case of unexpected events such as illness.

Establishing a Contingency Plan

Among the 4.8 million-strong self-employed workforce in the UK today, Scottish Widows estimate that just 7% have a contingency plan in place should they fall sick. While it’s tempting to believe that we can soldier on even in the most challenging circumstances, the reality often proves otherwise.

If you were to fall ill today with cancer, suffer a heart attack or have an accident that required major organ transplant, would you be able to cover the costs for your treatment? Do you have someone that could run your business and maintain your income while you’re off sick and during your recovery?

The majority of sole traders have no-one to cover for them in the case of sickness. Considering the often-huge amount of time, effort and cost invested into creating your own business and maintaining a healthy turnover, this seems an unnecessary risk to take.

The smaller the business, the more vulnerable it is to failure in the case of critical illness which means that sole traders must put all the necessary measures in place to secure their business. This also means that Critical Illness Cover often proves a worthwhile investment for business owners of SMEs.

In this context, cover would usually be taken out for more senior employees such as management, whose absence would have a serious impact on profits and the smooth running of standard company process. The business owner would usually receive a lump sum payment which would help to maintain the running of the business and alleviate a drop in profits should an employee be diagnosed with a critical illness.

Critical Illness Cover should be considered less a luxury and more a necessity. You are your business and it is up to you to take out all the measures to protect your income, both now and in the future.

The ABC of Critical Illness Cover

Critical Illness Cover sits at the crossroads between business and personal protection, providing a safeguard for you, your family and your business at a time when the last thing you need to concern yourself with is financial pressure.

As a long-term insurance policy, Critical Illness Cover provides a (usually) tax-free lump sum to those diagnosed with a serious illness that survive for 28 days after diagnosis (the period of time may depend on your policy).

It covers a range of core conditions including most types of cancer, heart attack, kidney failure, multiple sclerosis, major organ transplant, stroke and permanent total disability.

The key benefit of Critical Illness Cover is that it pays out upon diagnosis to alleviate any stress or financial burden almost immediately. Even if you make a full recovery, you will still benefit from this protection.

Easing the Financial Burden

Putting the right cover in place means that you don’t need to worry about a dip in profits during your illness. This lump sum payment will ease the financial burden and cover unavoidable costs such as home help, nursing care or adapting your home for disabled use.

Funds can also be used to cover costs on a wider scale, such as paying off your mortgage. This type of cover allows you and your family to cover any financial obligations without undue pressure, leaving you free to concentrate on healing emotional and physical traumas.

It protects your dependents when your business provides the only source of income for your household and avoids wiping out your savings account in one fell swoop.

As Scottish Widows research shows, 47% of self-employed workers have no savings at all and the average sole trader has enough savings to last just over nine months, this type of cover is even more important. Karen Barrett, founder of, states that the average critical illness cover pay-out in 2016 was £68,000 – or two and a half times the average full-time salary in the UK at the time.

Down to the Details

As with any policy, terms and conditions will vary between insurers and it is essential to pick the policy that fits best with your circumstances.

Always have an expert check over the terms of your policy to ensure there are no loopholes – for example, some policies will only pay out if you can’t fulfil the duties in your current position whereas others will pay out only when you cannot do any work at all.

Both have their benefits and we recommend speaking to a financial adviser to make sure that you have chosen the most cost-effective policy with optimum protection for your budget and circumstances. This may depend on factors such as the value of your business, annual turnover and whether you have any dependents. You may also need to declare any pre-existing conditions.

Understanding the Different Types of Protection

Many people believe that Critical Illness Cover, Key Person Protection and Life Cover are one and the same but each one offers a different type of protection that may or may not be relevant to your situation.

Key Person Protection relates to companies and is used to cover those personnel considered indispensable – such as business owners, managers or an employee with a unique skillset – in the case of illness or death. For business owners of SMEs, key person protection should be an integral part of the insurance plan, where it often works in tandem with health insurance to cover all bases. This policy will protect the financial interests of your business with the aim to cover any loss due to your absence as well as related expenses such as recruitment to find a replacement.

Life cover is a policy designed to protect your dependents in the case of your death. At Vintage Wealth Management, we offer both individual and corporate clients access to a wide range of protection solutions including Term Assurance and Whole of Life policies, as well as Key Person, Partnership and Shareholder protection.

As a key part of the protection arrangements for any sole trader, it may sometimes be effective to combine your Critical Illness Cover with other insurance policies to reduce costs and safeguard yourself in the most dynamic way. An expert, such as one of our team at Vintage, will be able to make sure you are setting yourself up for the best chances of a successful claim should the worst happen.

Taking time off due to illness costs business owners and self-employed workers thousands of pounds every year. If you want to create a tailored financial back-up plan to protect your business, contact us on 020 8371 3111 or email: