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Heightened risk of financial crisis for self-employed

4 September 2017 | Press Release

  • Around two million of the country’s self-employed can’t afford to save anything each month
  • Only 4% have income protection insurance to cover their outgoings if they couldn’t work, which could leave them struggling to cope financially
  • 42% self-employed people wrongly think they aren’t eligible for income protection policies

Nearly two million[1] self-employed people in the UK are unable to save any money each month leaving them vulnerable to financial shocks, according to new research by leading insurer, LV=.

With the number of self-employed workers now close to five million, the second instalment of LV=’s ‘Income Roulette’ report – a study[2] of debt, savings and protection among 9,000 people – explores how the self-employed would cope with an unexpected financial shock. The results show four in ten (41%) self-employed people can’t afford to save any money each month and a further one in ten (11%) save less than £50. Furthermore, a third (33%) couldn’t survive for more than three months if they lost their income – meaning they fall short of the Money Advice Service’s recommended amount of savings that would allow them to be financially resilient.

When looking at barriers to saving, the figures show that monthly bills eat up the wages of nearly two thirds (62%) of self-employed people, compared to a national average of 56%, with this group also more likely to be hampered by debt (38% vs 32% national average).

As self-employed people don’t have the safety net of employers’ benefits, such as sick pay, they could take advantage of some form of income protection[3] to avoid having to rely on state support if they couldn’t work because of accident, sickness or disability. However, only 4% of self-employed people in LV=’s research have income protection, compared to a national average of 11%, with four in ten (42%) mistakenly believing that they’re not eligible for it. However, even those in riskier occupations can get valuable cover with products such as LV=’s Personal Sick Pay (PSP) policy.

Cost is another misconception, with nearly four in ten (37%) thinking income protection would be too expensive, although in actual fact cover of £1,000 a month could cost less than £10 a month[4]. Having income protection would prevent people from having to claim on the state, which is not an easy process. To apply for Employment and Support Allowance there is a nearly 60 page claim form, a lengthy assessment process, and weekly benefits are less than £80.

Despite the lack of saving and insurance, LV=’s research shows this group is aware of the risks associated with self-employment. Three in ten (28%) are worried about having an accident and not being able to work (vs the national average of 21%) and a similar proportion (29%) are worried about falling sick (vs 24%). LV=’s Risk Reality Calculator enables advisers to bring the actual risk to life by demonstrating to their clients the chances of them being out of work or suffering a serious illness.

Justin Harper, Head of Protection Policy at LV=, said: “The labour market has changed markedly in recent years, with self-employment continuing to rise. The Government’s Taylor Review sought to address the challenges of the modern workplace and ensure all workers are aware of their rights, but it’s often the case that self-employed people and small business owners lack the safety net of an employer’s benefits, such as sick pay. This means they risk having to rely instead on state benefits which can involve a lengthy application and wait, with no guarantee of any support.

“Government and industry have a duty to improve the financial resilience of the self-employed. We believe that an income protection policy can play an important part in increasing resilience and is one of the best ways for the self-employed to protect themselves against a financial crisis. By having a conversation about protection with clients, advisers can ensure more people in the UK are equipped to tackle financial blows.”

LV= also believes the Government’s new financial guidance body should have a specific responsibility to help build and promote financial resilience among UK households, particularly in the most vulnerable groups like the self-employed.

Notes to editors:

The full ‘Income Roulette’ report will be published later this year.

[1] Sum: The Resolution Foundation reports there are 4.8 million self-employed workers in the UK (A tough gig? The nature of self-employment in 21st Century Britain and policy implications). 4.8 million x 41% = 1,968,000 unable to save

[2] Methodology for research: YouGov, on behalf of LV=, conducted online interviews with 9,495 UK adults between 5th and 10th July 2017. Data has been weighted to reflect a nationally representative audience. Among the research there were 676 respondents who are self-employed.


[4] A 25 year old, non-smoker, retiring at 65 could get £1,000 of cover a month with LV= for just £6.79 a month. Based on a three month waiting period and level cover.

Definition of self-employed: within this context, LV=’s definition of ‘self-employed’ covers sole-traders, freelancers and micro businesses.

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