Life insurance for self-employed

What is life insurance for the self-employed?

Life insurance is available to those who are self-employed and is designed to protect your family and other people who depend on you financially by paying out a lump sum upon your death. 

Why do I need self-employed life insurance cover?

While there are many advantages to being self-employed, such as being your own boss, having a better work-life balance and, if you work from home, avoiding the daily commute, there are some financial benefits that self-employed workers miss out on, including death in service, which is a type of benefit where your employer will pay a sum of money should you die whilst at work, or health insurance through the company. Whatever the size of your business, it’s important to think about what would happen to others who depend on your income if you pass away.

Although death is not something any of us really want to think about, as a self-employed person there is a need to consider how expenses, loans and outstanding bills would be covered if you were no longer there. Life cover pays out a tax-free lump sum on the death of the policyholder. So, if you do pass away, the payment would allow your beneficiaries to cover monthly living costs and possibly keep your business running, should they wish to.

Working for an employer has some benefits that are unavailable for the self-employed. Life insurance for self-employed people can bring a sense of stability to a career that isn’t always otherwise predictable and provide a safety net for those you love should you die.

Types of life insurance for the self-employed

Life insurance policies work the same way whether you’re employed or self-employed, although your reasons for buying a policy might differ. The main types of life insurance policy are:

Level term life insurance

This gives a pay-out if you die within the life (or ‘term’) of the policy. The length of this term will be pre-arranged by you when you take out the cover, as will the pay-out amount and the cost of your monthly premiums.

Decreasing term life insurance

This is designed to provide a pay-out that decreases in value with each year of the policy. With this type of cover, you set the amount and the length of the term. These policies can be used to help with a number of things such as repayment mortgages, decreasing in line with the outstanding amount you have left to pay over time.

Increasing life cover

This increases the death benefit payable each year of the overall term in order to protect against things like inflation and potential increases in family financial needs, such as university fees. Increasing life cover policy premiums also increase annually, where they remain the same throughout your policy with term and decreasing cover, so this is also something to factor in.

Whole of life cover

This runs until you pass away and is therefore guaranteed to pay-out. It’s also often known as ‘life assurance’, as the pay-out is assured. Due to its nature, premiums can be more expensive, so it’s wise to compare life insurance to find the right policy for your needs.

When should I buy self-employed life insurance?

As with most kinds of personal insurance policies, the younger you are when you buy life insurance, the better. This is because at a younger age, you'll qualify for lower premiums. As you get older, you could develop health problems that make insurance more expensive or even disqualify you from purchasing a plan at all.

As you reach your 30s and 40s and begin the next stage of your life, you’re more likely to have children, a mortgage, and other financial commitments. You might have also recently become self-employed after building up experience in-house, but all your outgoings still need to be paid come what may. These large life events are all important factors in determining when you might need life cover. Life insurance is one of the most affordable ways to protect your family’s finances in the event of your death and, if you want to keep your premiums low, the ideal time to purchase life cover is in your mid-20s. We explain more about this here.

How much does life-insurance for the self-employed cost?

The cost of income protection insurance while self-employed will depend on various factors, including the type of policy you select and your personal circumstances. Insurance providers will consider:

• Your occupation and associated risks
• Your age
• Existing medical conditions
• Coverage level
• Policy duration.

What other insurance products are available for the self-employed?

Life insurance for self-employed people is an important protection for your family should anything happen to you, and is one of the most cost effective ways to make sure they will always be ok. As well as the worst-case scenario, there are other situations that might warrant life insurance or other types of insurance too, however, such as:

Income protection for the self-employed

Income protection will pay you a monthly tax-free benefit if you are unable to work because of an accident or sickness. By getting income protection insurance, self-employed people can stop worrying about what would happen if they were too ill or injured to work in the short-term.

Learn more

Health insurance for the self-employed

Health insurance is private medical insurance that can help protect you and your business by offering faster access to medical treatment if you fall ill, safeguarding you against waiting lists on the NHS. When you are self-employed it’s essential that you receive medical treatment as quickly as possible and get back to work as soon as you can. Having health insurance while self-employed offers you quick access to first class healthcare exactly when you need it.

Learn more

Critical illness cover

This gives a tax-free lump sum that will help to cover essential costs in the event of a critical illness preventing your return to work and threatening your financial security in the longer-term.

Learn more

How do I buy self-employed life insurance cover?

There are many types of life insurance on the market that would be suitable for those who are self-employed, and before you buy insurance it’s important that you compare life insurance quotes to make sure you are getting the right cover at the best price.

With ActiveQuote, it’s easy to compare life insurance quotes online from across the UK to find the best life insurance cover at an affordable price. You can compare the best quotes online in less than two minutes to find a plan that suits you. With ActiveQuote you can also buy your life insurance online.

Life Insurance for self-employed FAQs

Is life insurance tax-deductible for the self-employed?

HMRC views life insurance as a personal expense. Therefore, if you purchase life insurance for yourself to ensure your family receives a payout in the event of your death, this is not considered a business expense. Tax-deductible business expenses include items such as travel, equipment, or electricity bills, which are necessary for conducting business. Since life insurance is not essential for business operations, it’s not tax-deductible.

However, there are certain situations where life insurance can be tax-deductible. One example is a 'key person' policy. If you are an essential figure in a company and your death would result in financial loss for the business, a key person policy allows your business partners to claim money for lost earnings. This type of policy is considered tax-deductible.

How much self-employed income protection cover do I need?

The amount of coverage you need will depend on your income. However, measuring the income of self-employed workers can be challenging. Some self-employed individuals have regular, consistent work, while others work irregularly or on a project basis.

To determine your average income, most insurance providers will examine your pre-tax profits, typically over the past financial year. If you fall ill and make a claim, the monthly payout you receive will be an agreed percentage of that calculated average monthly income.