Life insurance for self-employed individuals

Read our comprehensive guide on life insurance for self-employed people, including freelancers, contractors and directors. Find out what options are available and what's included in each.

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According to the Office for National Statistics, at the end of 2019, there were more than 5 million self-employed people in the UK, up from 3.2 million in 2000.

While being your own boss and making your own hours has many benefits, self-employment offers less security in many ways, and doesn’t come with the benefits available to employees through their employers.

Find out below why life insurance for self-employed individuals is important and how to get covered.

What is self-employed life insurance?

Self-employed life insurance is life cover aimed at people who work as freelancers, contractors, consultants, company directors or company owners.

There are several types of policies on offer, depending on your requirements and priorities. The different options are detailed further down the page.

Do you need self-employed life insurance?

That is really a personal decision, but you must consider the fact that being self-employed doesn’t come with the benefits offered to many employees, like a pension, death in service cover or private health care.

Should something happen to you, will your family be able to cope with their monthly outgoings without the income you bring? Would the mortgage be covered? If you’re not sure, then getting life insurance can help alleviate the worry that you might leave your loved ones in financial difficulties if you die unexpectedly.

How much is life insurance for the self-employed?

Insurance is affected by many personal factors, and even more so when it comes to life insurance.

Your health, lifestyle and personal circumstances (such as location) will all impact your premium. Your line of work can also affect the cost – higher risk jobs (such as electrician or builder) will likely come with bigger premiums than, say, an accountant or teacher.

How much life insurance do you need if you are self-employed?

This depends on how much money you think your dependents will need to maintain their current lifestyle should something happen to you.

When deciding how much cover to take out, consider things like the cost of your monthly mortgage payments (and how much is left to pay overall), regular monthly outgoings and whether your partner (if you have one) has an income of their own.

Types of insurance for the self-employed

There are several types of life insurance policies available. These can be taken out by anyone, not just self-employed people, but some aspects might be more important if you are your own boss.

The three main types of life insurance policies are:

  • Life insurance. If you die, your beneficiaries get a payout of an amount specified in the policy. This can sometimes include critical illness cover, which pays out if you become seriously ill, but you might have to pay extra for this.
  • Income protection. This is usually a part of a business insurance policy and pays out if you are unable to work for whatever reason, including an accident, illness or other reasons beyond your control.
  • Health insurance. You can take out private health insurance, which includes cover for treatments that are not included on the NHS, and can fast-track diagnosis and care. Health insurance can help with some financial pressures associated with serious illness, but it doesn’t replace your regular income or pay out if you die.

Life insurance vs income protection

The two types of cover are quite different.

Income protection provides regular monthly payments if you are unable to work for a period of time, but are still alive. This can help relieve any financial strain on your family and cover things like mortgage payments, bills and other monthly outgoings.

As there is no sick pay on offer for self-employed people, income protection cover is particularly important.

Life insurance pays out one lump sum to your beneficiaries if you die during the policy term. This can help with the cost of your funeral, paying off the mortgage, providing child care and covering regular monthly outgoings.

Your family is free to spend the money in any way they see fit, though with some life insurance policies, you can set it up to pay for specific things, like the mortgage.

Some life insurance policies include critical illness cover, which pays out in case you are unable to work due to illness. This sometimes requires an extra premium and has certain limitations, so it’s not necessarily a replacement for income protection cover.

You can have both income protection and life insurance if you wish to, as they cover different scenarios.

Life insurance vs health insurance

The main difference between these two types of insurance is that life insurance pays out if you die, whereas the purpose of health insurance is to help care for your health while you’re alive.

In terms of the benefits to self-employed people, having private health insurance can relieve some financial pressure by providing access to premium health care and helping to pay for specialist treatment should that be required. However, note that this does not provide the same type of reassurance that income protection does, as it won’t replace your monthly wage should you be unable to work.

Life insurance pays out a lump sum to your beneficiaries if you die during the policy term. This can help your family keep up with various kinds of expenses and help secure your children’s future.

As mentioned above, some life insurance policies include critical illness cover, which pays out if you are diagnosed with a serious condition (such as cancer or stroke). This doesn’t offer the same level of benefits that private health insurance does, nor does it provide financial support to your family if you cannot work as a result of your illness.

Is life insurance worth getting if you are self-employed?

That is a decision you have to make while considering your personal circumstances.

However, bear in mind that, as a self-employed person, you don’t receive sick pay and other benefits offered to many employed people, such as death in service cover and private health care.

Should you die or be unable to work, your family will lose your income, which can have very serious financial consequences, especially if you have a mortgage.

Bottom line

As a self-employed person, you probably have a lot on your plate. The last thing you need is the added worry of how your family might cope if you die or become unwell.

Taking out life insurance can help alleviate this pressure, by reassuring you that your family will be well looked after should the worst happen.

You can also take out income protection, to provide financial aid should you be unable to work for whatever reason, private health insurance to top up your health care, and critical illness cover to support you and your family if you become seriously ill.

Compare life insurance providers

Data indicated here is updated regularly
Name Product Cover options Age range at application Cover amount Pays out % claims paid Offer Link
Aegon
Aegon
Level term cover, decreasing term cover, increasing term cover, whole of life cover and family income benefit.
18-84
£1million
If a policyholder dies or is diagnosed with a terminal illness, sum will be paid.
96%
Compare providers
AIG
Level term cover, decreasing term cover, increasing term cover, whole of life cover and family income benefit.
18-84
£1million
If a policyholder dies or is diagnosed with a terminal illness, sum will be paid.
96%
£75 Amazon giftcard. Terms and conditions apply.
Compare providers
Aviva
Level term cover and decreasing term cover.
18-89
£5million
If you die or get a terminal illness and aren’t expected to live longer than 12 months.
98.9%
£75 Amazon giftcard. Terms and conditions apply.
Go to site
HSBC
Level term cover and decreasing term cover.
17-69
£250,000
If policyholder dies, the sum decided will be paid out.
100%
Compare providers
LV=
Level term cover and decreasing term cover.
17-79
£10million
If a policyholder dies or is diagnosed with a terminal illness, sum will be paid
99%
Compare providers
Royal London
Level term cover and decreasing term cover.
18-70
£500,000
If a policyholder dies or is diagnosed with a terminal illness, sum will be paid.
99.7%
Go to site
Scottish Widows
Level term cover and decreasing term cover.
18-64
£2million
If a policyholder dies or is diagnosed with a terminal illness, sum will be paid.
99%
Compare providers
Vitality
Level term cover, indexed term cover, decreasing term cover and family income term cover.
16-74
£20million
If a policyholder dies or is diagnosed with a terminal illness, critial illness could lead to an earlier payment.
99.8%
£100 Amazon giftcard. Terms and conditions apply.
Compare providers
Zurich
Level term cover.
16 - 83
£40million
If a policyholder dies or is diagnosed with a terminal illness, sum will be paid.
99%
£100 Amazon giftcard. Terms and conditions apply.
Compare providers
Legal & General
Level term cover.
18-77
£3million
If a policyholder dies or is diagnosed with a terminal illness, sum will be paid.
97%
Up to £150 amazon.co.uk or M&S gift card with life cover.
Go to site
Canada Life
Canada Life
Level term cover, increasing term cover and decreasing term cover.
18-80
£1million
If you die or get a terminal illness and aren’t expected to live longer than 12 months.
100%
The Canada Life app, access to discounts and benefits.
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