Critical illness cover if you’re self-employed

Running your own business gives you freedom, flexibility, and control.

But it also means you lose the safety net that many employees take for granted.

If you were diagnosed with a serious illness tomorrow, how would your business and your family cope financially?

Critical Illness Cover provides a tax-free lump sum if you’re diagnosed with a serious medical condition such as cancer, heart attack, or stroke.

It’s a vital layer of protection for anyone who works for themselves.

What is critical illness cover?

Critical Illness Cover pays out a one-off lump sum if you’re diagnosed with one of the specified critical illnesses listed in your policy.

You can use this payout however you choose:

• Replace lost income
• Cover treatment or rehabilitation costs
• Pay off a mortgage or business loan
• Support your family while you recover
• Invest in your business continuity

It’s not about expecting the worst; it’s about being ready for it so that you can focus on your recovery without financial stress.

Who is the guide aimed at?

This guide has been written especially for:

• Sole traders, freelancers, and self-employed contractors
• Business partners and directors of small limited companies
• Anyone without access to employer-provided sick pay or benefits

If you want to make sure your income and business are protected in the event of a serious illness, and you want clarity on how this cover fits into your financial plan, this guide is for you.

What conditions does it cover?

Each policy varies, but typically covers dozens of serious medical conditions including:

• Cancer (most types)
• Heart attack
• Stroke
• Multiple sclerosis (MS)
• Organ transplants
• Loss of limbs
• Permanent disability

Some policies also offer partial payouts for less severe conditions. Always check the policy wording to understand exactly what’s covered.

Other related protection products for the self-employed

Critical Illness Cover works best as part of a broader protection strategy. You may also want to consider:

• Income Protection Insurance Replaces a portion of your income if you’re unable to work due to illness or injury. Pays a monthly benefit until you recover or reach retirement age. Read our guide here.
• Mortgage Protection Insurance Ensures your mortgage payments are covered if you become critically ill or unable to work.
• Loan Protection Insurance Pays off specific business or personal loans if you’re unable to work due to illness or injury.
• Unemployment Insurance Offers limited cover if you lose your job (though not usually available to sole traders).

Important for sole traders: as a sole trader you do not qualify for Statutory Sick Pay. State benefits such as Employment and Support Allowance (ESA) or Universal Credit may be available, but support is limited and unlikely to cover your business or personal expenses.

How much cover can you take out?

You can usually choose the amount of cover and length of policy that suits your needs. Common approaches include:

• Covering your mortgage balance
• Matching your annual income (e.g. 1–3 years’ worth)
• Setting a fixed lump sum to support family and business costs

A financial adviser can help calculate how much cover you’d need to protect your financial commitments and maintain your standard of living.

Types of policy + premiums

There are two main types of critical illness policies:

1. Standalone Policy – covers critical illness only.
2. Combined Policy – includes life insurance and critical illness cover together (pays out once, whichever happens first).

The premiums you pay depend on:

• Your age and health
• Occupation
• Smoking status
• The amount and term of cover
• Whether you choose level, decreasing, or increasing cover

You can choose between guaranteed premiums (which remain the same throughout) and reviewable premiums (which may change over time).

An example critical illness claim

Case Study:

James, a 42-year-old electrician and sole trader, took out £100,000 of Critical Illness Cover to protect his mortgage and business.

At 45, James was diagnosed with early-stage cancer and needed several months off work. His policy paid out in full, allowing him to:

• Clear his mortgage
• Pay business overheads while he recovered
• Focus fully on his treatment without financial stress

Some final notes

• Claims are based on diagnosis, not the ability to work.
• Not all conditions are covered — check your policy’s list.
• Premiums are usually fixed and affordable, especially when taken out early.
• You can often add children’s cover for family protection.
• Payouts are tax-free and can be used however you wish.

What are the next steps?

Don’t leave your financial security to chance.

It only takes a few minutes to get a personalised quote and see how affordable protection can be.