The Truth About Critical Illness Cover

Think your limited company protects you from everything? Think again.

Whether you’re operating outside IR35 or caught inside it under PAYE rules, there’s one brutal truth every contractor must face: you are your own safety net. And if you’re hit by a serious illness, cancer, a heart attack, or a stroke, everything you’ve built could come crashing down.

Despite this, critical illness cover remains one of the most misunderstood and underused tools in a contractor’s financial arsenal. Let’s shatter the myths and spell out exactly why you can’t afford to ignore it, regardless of your IR35 status.

Myth #1: “I’m Inside IR35 Now, So I Don’t Need Cover.”

❌ False.
Just because you’re taxed like an employee doesn’t mean you’re treated like one when life gets tough.

IR35 contractors typically work through umbrella companies or PAYE via agencies. But here’s the catch:

You don’t get full employment rights.
You’re unlikely to receive occupational sick pay.
You may not be eligible for long-term illness protection from your umbrella or agency.

What that means: If you fall seriously ill, your income could stop overnight. Critical illness insurance ensures you don’t also lose your home, your lifestyle, or your business dreams.

Myth #2: “I’m Outside IR35 and Covered by My Limited Company.”

❌ Not quite.
While operating outside IR35 gives you flexibility and control, it also exposes you to serious risk.

If you’re diagnosed with a critical illness:

Clients can end contracts immediately.
Your company has no legal obligation to pay you.
There’s no statutory sick pay or employer-backed insurance safety net.

Solution: Structure a critical illness policy to be paid for by your company (where appropriate), potentially gaining:

Corporation tax relief
No P11D or benefit-in-kind exposure (if set up correctly)

It’s one of the few ways you can turn your business into a shield, not a liability.

The Stats You Can’t Ignore

Over 91% of critical illness claims were paid out in the UK in 2023 (ABI).
The average payout was £70,898—a financial lifeline during a time of crisis.
Contractors are 2.5x more likely to suffer a critical illness before 65 than to die (Legal & General).
65% of self-employed workers can only last 3 months without income (ONS, 2024).

Why Critical Illness Cover Is Vital—Inside OR Outside IR35

You Don’t Get Sick Pay

Umbrella companies don’t offer full employee benefits. Your limited company certainly doesn’t. If you’re out of action, you’re out of income. Critical illness insurance steps in with a tax-free lump sum.

You Have Bills (and Possibly a Mortgage)

Contractors often earn more—great! But that also means bigger financial commitments. If you can’t work:

Will your family stay in the same home?
Will your children’s education be affected?
Will your partner need to return to work or work more?

Your Business Stops With You

If you’re a director or key person in your company, your business is you. Critical illness cover can also fund key person policies, protecting cash flow and buying time for recovery or restructuring.

Your Contract Could Disappear

Even in the best of health, contracts end. Imagine what happens if you can’t deliver. No recovery time. No fallback. No earnings. That lump sum payout becomes your only financial buffer.

Real Protection for a Real Risk

Don’t fall into the trap of thinking this is just another upsell. Critical illness cover isn’t about fear—it’s about freedom:

Freedom to recover without rushing back to work.
Freedom to pay off your mortgage and avoid debt.
Freedom to protect your loved ones from financial chaos.

Inside IR35? You’re Still Independent.

Your tax status may have changed, but your responsibility for your own wellbeing hasn’t. You’re still not a full employee. So don’t assume someone else will pick up the slack.

Outside IR35? You’re More Exposed Than You Think.

You’ve got flexibility—but no fallback. Critical illness cover gives you breathing room when you need it most.

The Bottom Line

It doesn’t matter what side of IR35 you’re on—if your health goes, everything else could go with it.

Be proactive. Be protected.

Critical illness cover is the modern contractor’s safety net—one that protects your income, your business, and your family’s future.

Need help finding the right policy?

Whether you’re inside IR35, outside, or somewhere in between, we’ll help you structure a plan that fits your status, tax strategy, and lifestyle. Get in touch with Broadbench today and protect what really matters.

Speak to an expert