Starting a Business or Going Self-Employed? the Protection Gaps Most People Miss
Written by Check Financial · 4 min read
The short answer
Leaving employment changes the protection picture more than most people realise. Here is what to think about, and what employer benefits you may be quietly losing.
When you become self-employed or start a business, three things typically disappear: employer sick pay, death-in-service life cover, and sometimes employer-funded private medical insurance. The personal equivalents are income protection and personal or relevant life cover. If you trade through a limited company, business-paid policies (relevant life, key person, shareholder protection) are usually much more tax-efficient than personal ones.
What You Lose When You Leave Employment
- Statutory and contractual sick pay. Self-employed individuals have no safety net beyond a small amount of state support.
- Death-in-service benefit. Many employers provide 2x to 4x salary life cover automatically. That ends the day you leave.
- Group income protection. If your employer offered it, you're now on your own.
- Private medical insurance. Often a valuable employer benefit you'll need to replace personally.
Personal Protection for the Self-Employed
For sole traders and partnerships, personal income protection is usually the most important policy. It replaces a portion of your income if illness or injury stops you working. See our self-employed income protection guide.
Personal life insurance to replace employer death-in-service cover is the second priority, particularly if you have a mortgage or dependants.
Business Protection for Limited Company Directors
If you trade through a limited company, several business-paid policies are usually much more tax-efficient than personal cover:
- Relevant life cover, personal life insurance paid for by the business, typically allowable as a business expense and paid tax-free to your family. More on business cover.
- Key person cover, protects the business itself against the loss of someone whose absence would materially affect profits.
- Shareholder protection, funds for surviving shareholders to buy out a deceased shareholder's stake, keeping the business in the right hands.
- Loan protection, covers business debts that have been personally guaranteed.
When to Put Cover in Place
The best time is before you leave employment, while you still have employer benefits as a fallback and your health is unchanged by the stress of a new venture. Putting cover in place early locks in current premiums for the term and means no period of being uninsured during the transition.
Real client scenario
A client left a corporate role to start a consultancy through a new limited company. We arranged personal income protection (sole income), a relevant life policy paid through the company replacing their old death-in-service benefit, and reviewed business continuity once the company had been trading for 12 months, at which point we added key person cover.
Most of the structural gaps people accidentally create when going self-employed are simple to fix, once someone has flagged them.
Building Something? Let's Make Sure It's Protected.
A short conversation to map the protection gaps and identify the most tax-efficient way to plug them.
Talk to usBusiness Owner Protection FAQs
Do I need income protection if I go self-employed?+
What happens to my life insurance if I leave my job?+
What is relevant life insurance?+
What is key person insurance?+
What is shareholder protection?+
Are business protection premiums tax-deductible?+
Related Guides
Income Protection for Self-Employed People
How cover works when you have no employer sick pay and your income varies.
Read guide →Income Protection Explained
Read guide →Business Protection
Read guide →This guide is general information, not personal advice. Check Financial Ltd is an appointed representative of Capital Protect Ltd, authorised and regulated by the Financial Conduct Authority.