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Life Insurance for the Self Employed

Last updated: 28/07/2023 | Estimated Reading Time: 5 minutes

Being self employed comes with a unique set of challenges and risks, but it can also be an incredibly rewarding path to take. People who work for themselves need to accept a great deal of uncertainty, particularly when first starting out. It can often be difficult to predict how your income could change and there may be a limited budget for things like holiday and sick pay.

However, self employment doesn’t mean that your family has to suffer with the uncertainty of what they would do for money after you die. Self employed life insurance can help to give both you and your loved ones the peace of mind that comes with financial security.

In This Guide:

Can You Get Life Insurance If You Are Self Employed?

Yes, it’s definitely possible to take out life insurance if you’re self employed. As long as you can pay your premiums, there’s no reason why you shouldn’t have similar options as someone who is employed full-time.

However, one type of policy you won’t be eligible for is the death in service benefit. This is a life insurance add-on that’s specifically offered by employers and pays out somewhere between two and four times an employee’s salary if they die during their employment.

Do You Need Self Employed Life Insurance?

Life insurance is only necessary if you have family or dependants who would struggle to cope financially if you were to pass away. If you’re self employed, your family won’t receive any money from a death in service benefit if you pass away, which may make it more important for you to take out life insurance. However, the choice is still yours and some self employed people may prefer to save or invest their money for their family.

What Kind of Life Insurance is Best for Self Employed People?

Self employed life insurance doesn’t look the same for everyone and the type of policy you need will depend on your personal circumstances. Some policies that are popular with self employed workers include:

Term Life Insurance

Term life insurance provides cover over a specific period of time, such as 10 or 30 years, so if you die within the specified window your family should receive a payout. It’s typically more affordable than whole life insurance and can help the families of self employed people cover expenses such as mortgage payments or school fees. Term life insurance is available in a few different variations, such as level term, increasing term and decreasing term life insurance.

Income Protection Insurance

Income protection insurance can benefit all self employed workers, not just the ones with families. Typically available as an add-on to standard life insurance policies, income protection insurance can also be taken out alone with some life insurance providers. In the event that you become too ill or injured to work, an income protection policy can provide you with monthly payments that help you to cover your living costs.

Critical Illness Cover

Similar to income protection insurance, having a critical illness add-on alongside your life insurance policy could entitle you to money if you develop a serious illness. However, unlike income protection insurance, critical illness cover isn’t usually available on its own and it won’t provide you with regular monthly payments. Instead, you’re more likely to receive a one-off lump sum payment.

Family Income Benefit

If you’d prefer your family to receive monthly payments to help them cover their living costs rather than a lump sum, family income benefit might be right for you. The period for these payments will depend on your agreement with your provider, but it can be a better way for your loved ones to manage your money after you’re gone. If you are the main earner in your family, this type of life insurance policy can act as a replacement for your wage.

Please Note: Not all insurance providers we work with offer all types of policies. Please do your research and compare quotes before proceeding.

Can You Get Income Protection Insurance If You are Self Employed?

Yes, you can get income protection insurance if you are self employed and it’s often a very good idea. Unlike people who are employed, anyone who works for themselves won’t benefit from typical sick pay policies, meaning that if you’re too ill to work, you’ll be losing money.

While self employed people aren’t entitled to statutory sick pay, they could be entitled to an employment support allowance. However, if you have a family to support, the money you receive may not be enough to cover your costs, especially if your sickness is a long-term problem.

There is a lot of flexibility when it comes to choosing a self employed income protection policy and you’ll be able to choose between long and short term cover as well as the amount of money you’ll receive each month.

Is Life Insurance Tax Deductible and Can You Claim it as a Business Expense?

Some types of life insurance can be claimed as a business expense, but personal cover designed to protect your family usually isn’t one of them.

Business expenses must be directly linked to the running of your business, so if you buy life insurance for your employees or take out a key person policy to protect your business, you may be able to claim them as an expense. However, a life insurance policy that provides your family with a pay out or helps you to pay your mortgage if you get sick isn’t linked to business activities and therefore cannot be tax deductible.

Explore Life Insurance for Self Employed Workers

Self employed life insurance can provide both you and your family with the extra security you need when the unexpected happens. However, it’s crucial that you take some time to compare life insurance policies and find the right fit for your needs. Whether you’re hoping to safeguard your income should you become too ill to work or you want to ensure your partner and children can stay in their family home after you pass away, life insurance can help. Here at Money Expert, we can help you to understand your options so that you can get started on your life insurance journey sooner rather than later.

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