Rachel Braverman, Research Officer, Money and Mental Health

Being your own boss: the upsides and challenges for people with mental health problems

15 November 2018

For many people with mental health problems, self-employment can offer much needed flexibility, in terms of when, where and how they work. As one member of our Research Community told us:

I am self employed because it allows me to rest when I need to and work unusual hours, which helps with the management of depression and anxiety.”

However, when self-employed people need to take time off work because of mental (or physical) illness, financial difficulties can arise far more quickly than for employees. In our latest report, ‘Too ill to work, too broke not to’, we surveyed 75 self-employed people who had needed to take time off work because of a mental illness. Just over half (51%) told us they had received no income at all while they were off sick.

As there are fewer replacement income options for self-employed people, this is not surprising. Unlike employees, they are not entitled to sick pay from their employer, nor would they be able to claim on an employer’s Group Income Protection Insurance. This leaves benefits and individual income protection insurance as the only income replacement options available – and there are problems with both.

Lack of replacement income

Self-employed people can claim either Employment Support Allowance or Universal Credit when they cannot work because of a mental illness. Applying for either involves a long and complicated form, appointments, capability assessments and delays. These benefits are also means-tested and proving income (or lack of it) is particularly difficult for self-employed people. Trying to do all this during a period of poor mental health can be a huge struggle and, for some proves impossible. When (or if) people succeed in claiming, the rates are often significantly less than a person’s usual income.

Insurance companies provide individual income protection insurance, which self-employed people could take out to provide a replacement income. However, take-up is very low, with only 3% of the working age population having this kind of cover.  It can be expensive and, for people with pre-existing mental health problems, there may be issues around finding a company to take them on.

“I had tried to get an insurance policy to cover sickness but after everyone (around seven different insurers) declined me due to my history of depression I gave up. I even asked them to exclude any mental health claims but was still unsuccessful!” – Research Community member

Making ends meet

So if you have no income or a much reduced one while off sick, how do you eat and pay the bills? People often need to rely on their savings to see them through – if they have them. Research by insurance firm Liverpool Victoria found that two fifths (41%) of self-employed workers can’t afford to save anything and a further one in ten say they can only afford to save less than £50 per month.

The combination of a severe drop in income and few savings can have disastrous consequences. Nearly half (49%) of self-employed people in our survey went without essentials, over a third (35%) missed at least one rent or mortgage payment, putting their housing at risk, and 59% borrowed money. Some people reported getting into serious debt, with long term consequences.

“I now have serious debts, no home and have ruined my 100% credit score… and am about to declare bankruptcy.” – Research Community member

Damage to self-employed businesses

For self-employed people, an extended period away can be catastrophic for their business. Customers may not be able to wait so may find other suppliers, relationships built up over years can fall away quickly and a reputation for reliability can be undermined.

“Businesses and clients went elsewhere. All the work I had done to establish a solid base was taken away.  I had to start from scratch.” – Research Community member

Yet worrying about finances can often also hamper people’s recovery, delaying their ability to return to work and – for self-employed people – repairing the damage to their businesses.

Improve income protection insurance

Income protection insurance could provide that all important safety net, but there is a gap in the market for a suitable product. Our new report recommends that the government should set up a Challenge Prize Fund to encourage the development of a simple, affordable product for self-employed people with a pre-existing mental health condition. Developing such a product will take enterprise and initiative – we know it’s out there.