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Life insurance for the self-employed explained

Find out what you need to know about life insurance if you’re self-employed.
Being your own boss has many perks. From choosing your projects, to choosing your working hours and holidays. It also comes with extra responsibilities though, that employees don’t need to think about.

If you work for someone else, they may offer a ‘death in service’ benefit. That means their insurance company will make a payment to your family if you die while employed by them. But if you’re self-employed, you won’t automatically receive any cover. And that’s why self-employed life insurance is worth thinking about.

Can I get life insurance if I’m self-employed?

Yes, absolutely. Almost half of self-employed people have some kind of life insurance (ActiveQuote 2019). Life insurance for self-employed professionals is the same as life insurance for anyone else.

Certain self-employed jobs do come with a risk of death or injury. So, life insurance gives you and your family peace of mind.

How does life insurance for self-employed people work?

  1. You need to choose the kind of cover you want. There are two main kinds of life insurance. Term life insurance means you’re insured for a set number of years. If you die in that time, you get a payout. Whole life insurance lasts until you die so your family gets a payout whenever you pass away. 

  2. You choose the required level of insurance. If you want your loved ones to receive a bigger payout, your premiums will be higher. The insurer will also want to learn more about your job and the possible risks. More hazardous jobs will usually have higher premiums (‘premiums’ is the word for the money you pay the insurance company). Once you’ve settled on a quote, you may have to have a medical examination. 

  3. You simply pay your monthly, quarterly or annual premiums. If you die, your loved ones make a claim. 

Do I need self-employed life insurance?

It’s a question of risk. How you weigh the risks up depends on your circumstances.

Some self-employed people face a relatively low risk of death. A graphic designer who works from their home office is unlikely to die at work. But a roofer, for instance, faces a higher safety risk on the job.

There’s also a question of your circumstances. A young person with no dependents and no mortgage might feel it’s unnecessary. But if you have a family and are the sole breadwinner, your loved ones would struggle financially if you died. Life insurance gives peace of mind, especially during hard times.

What types of insurance should I consider?

There are a few different kinds of insurance that are relevant to self-employed people. Sometimes there’s crossover between them. You can also get packages with a few different kinds of insurance bundled together.

First are the different kinds of self-employed life insurance. You can get whole life insurance or term life. There are also illness-related insurances for the self-employed. Critical/serious illness cover pays you a monthly income while you’re recovering. It also helps pay for private medical bills. You could also choose income protection insurance. That provides you with monthly payments if you’re off work because of injury or illness. 

Self-employed people should also think about liability insurance as it’s a legal requirement in some trades. If someone decides to take you to court, liability insurance will pay your legal fees. 

Will my household insurance cover me?

No, contents and building insurance does not include life insurance cover. Whether you work from home or elsewhere, you will need separate life insurance. Home insurance covers things like damage to the property or theft. You make a claim and receive money to pay for replacement/repair. With life insurance, your loved ones get a payout if you die.

Many self-employed people work from home. That means you might have valuable equipment in the house. It makes sense to get extra insurance, so your gear is protected. If the equipment technically belongs to your business, you should tell the insurance company about this. It might be necessary to get separate insurance for work items.

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

Her Majesty's Revenue and Customs sees life insurance as a personal cost. So, if you are buying life insurance for yourself (so your family receives a payout if you died), this isn’t a business expense. Tax-deductible business expenses are things like travel, equipment, or electricity bills. They are for the money you spend to do business. Life insurance isn’t strictly necessary to do business. So, it’s not tax-deductible. 

There are a couple of circumstances where it could be tax-deductible. One example is a ‘key person’ policy. If you are an irreplaceable person at a company, the business would lose money if you died. Key-person policies mean your business partners could claim money for lost earnings. This kind of policy is tax-deductible.

Relevant guides and articles

  • Serious and critical illness cover

    Critical illness cover pays you a lump sum if you're diagnosed with a critical illness. Instead of paying out monthly like income protection, it's a one off payout. Find out everything you need to know in our guide.

  • Life insurance premiums guide

    What are life insurance premiums and how are they calculated? Here’s everything you need to know about premiums, including different types.

  • Self-employed income protection

    Read our guide to income protection insurance for the self-employed and how it could support your livelihood and family if anything happened to you.