You and the business are one
Running as a sole trader keeps things simple. You file a self assessment return, keep the profits after tax, and make every decision yourself. The flip side is that the law sees no line between you and your trade. A van loan, a supplier account or a business overdraft is your personal debt, and your home can be at risk if the business cannot pay.
It also means many business protection products do not fit. Relevant life cover and executive income protection need a limited company to own and pay for them. Shareholder protection needs shares. For a sole trader, the answer lies in personal cover set up with the business in mind.
Income protection comes first for most sole traders
If you break a wrist or need surgery, nobody pays you to recover. Statutory sick pay is for employees, and the state support available to self-employed people is modest and means tested in many cases. Your bills, and often your business overheads, keep arriving.
Income protection pays a monthly benefit after a waiting period you choose, for as long as the policy allows while you cannot work. Insurers usually base the amount on your taxable profits, often averaged over recent years, so keep your accounts up to date. A longer waiting period lowers the cost if you have savings to bridge the first weeks.
- Choose a waiting period that matches your savings buffer
- Look for an own occupation definition where your trade allows it
- Check how the insurer works out earnings for the self-employed
- Ask about cover for fixed business costs, which some insurers offer
Life cover for your family and your borrowing
When a sole trader dies, the business usually ends with them. Stock, tools and vehicles become part of the estate, and any business debts have to be paid before the family inherits. A life insurance policy written in trust can give your family money quickly, outside the probate process, to clear what is owed and keep the household going.
Add up your mortgage, business borrowing and the years of income your family would need, then set the amount and term to match. Critical illness cover can sit alongside it and pay a lump sum on diagnosis of a listed condition, giving you room to close down or sell the business on your own terms.
Planning for the business itself
Some sole traders employ staff, hold stock or take deposits from customers. If you die or fall seriously ill, someone has to wind things up: finishing or handing over jobs, paying staff and suppliers, and returning money customers paid in advance. Naming an executor in your will who understands your trade makes that task easier for your family.
Write down where things are kept, such as supplier contacts, your accountant's details and any finance agreements on vehicles or equipment. A lump sum from life or critical illness cover gives your family time to sort these out properly, so tools and vans do not have to be sold in a hurry.
How Hi Tomorrow helps sole traders
We start with your trade, how your income has looked over the last few years and what you owe. That tells us how much income protection insurers are likely to offer, which deferred period suits, and how much life and illness cover would clear your debts.
We compare the insurers on our panel, many of which treat the self-employed differently when it comes to proving earnings. We help you with the application and the medical questions, and we can set up a trust on any life policy. If you later move to a limited company, we can review what the company could pay for instead.