Why self-employed cover is a different conversation

Quick verdict first: yes, you can absolutely get life insurance as a self-employed worker, and the products on the shelf are the same ones an employee would buy. Premiums are not loaded simply because you are self-employed — what changes the price is age, health, smoker status, the cover amount and the policy term, not whether you file a Self Assessment return.

What does change is the role the policy plays in your household. An employee usually has a layered set of protections funded by their employer. A self-employed person tends to have one layer: themselves. Life insurance, in this context, is the thing that keeps the mortgage paid and the children fed if you are not there to invoice next month.

That is why our advisers at LifePro start every self-employed conversation by mapping what disappears when you do — income, business loans, personal guarantees, dividend streams — rather than starting with a product brochure.

What employed colleagues get that you don't

It helps to be specific about the gap. Employees in established UK firms typically receive a death-in-service benefit equivalent to two, three or four times their annual salary, paid as a tax-free lump sum to their family if they die while employed. Many also have group income protection, sick pay above the statutory minimum, and a workplace pension with attached spouse benefits.

If you are self-employed, none of that exists by default. Statutory Sick Pay does not apply. Employer pension contributions do not exist. The two-times-salary lump sum that quietly underpins many employees' protection planning is simply absent.

The practical effect is that a self-employed worker often needs to buy more personal life cover than an employee on a similar income, because there is nothing else doing the job. A useful exercise is to picture the cover an equivalent employee would get for free through their job, and treat that figure as the minimum you should consider buying yourself.

Sole trader vs limited company director

How you trade legally changes which life insurance options make sense. Two common situations come up most often.

If you are a sole trader, you and the business are the same legal person. Your income is whatever the business takes after costs, and you pay the premiums on a personal life insurance policy from after-tax money. The product set you can buy is identical to an employee's: level term, decreasing term, family income benefit, whole-of-life or an over-50s plan.

If you are a director of your own limited company, a different door opens. A relevant life policy is a tax-efficient term policy that the company takes out on your life, pays the premiums for as a business expense, and writes into trust for your family. Premiums are not normally treated as a benefit-in-kind for you, the company can usually deduct them against corporation tax, and the payout reaches your family without going through your estate. For a higher-rate director, the effective saving against a personal policy can be significant.

Relevant life policies are not appropriate for everyone — they only work where there is an employer-employee relationship between the company and the person insured, they are single-life only, and the cover usually ends when you stop being an employee of that company. They are also a planning tool that benefits from advice. Our protection team will tell you, plainly, when a personal policy is the better fit.

Working out how much cover you actually need

Rules of thumb such as 'ten times salary' are a starting point, not an answer. For a self-employed household, a more honest method is to add up what would have to be paid for, then subtract what you already have.

Start with the mortgage. Whatever balance is outstanding is the single largest figure most households need a policy to clear. Add other personal debts — loans, credit cards, car finance — and any business debts you have personally guaranteed. A surprising number of self-employed clients forget the personal guarantee they signed when their company took on a credit facility; if you die, the bank still wants paying.

Next, think about replacement income. If your household needs the equivalent of, say, £30,000 a year and you would want to provide that for ten years while children grow up, that is £300,000 in today's money on top of the debt figure. Family income benefit is a particularly tidy way to fund this part — it pays a monthly amount to your family for the rest of the term rather than a single lump sum, which removes the burden of investing a large payout under stress.

Then layer in childcare and education costs, an emergency buffer for the months it takes a household to reorganise, and a contribution toward funeral costs. UK funerals routinely run to several thousand pounds and the wider 'cost of dying' is higher again.

Finally subtract anything already in place — existing personal policies, savings, any cover provided through a partner's employer. The figure left is, broadly, the gap a new self-employed life insurance policy needs to fill.

Which type of policy fits self-employed life

There is no 'self-employed life insurance' product as such — the label simply describes who is buying. The choice between policy types is the same as for any other applicant, and is led by what you are trying to protect.

Level term life insurance keeps a fixed sum assured for a fixed number of years. It is the workhorse of self-employed protection: you pick a cover amount and a term, premiums and payout stay flat, and the policy ends on the chosen date if no claim is made. It suits an interest-only mortgage, broad family protection, or a simple inheritance plan.

Decreasing term life insurance is built to track a repayment mortgage. The sum assured falls roughly in line with the falling balance of a capital repayment loan, which makes it the cheapest of the term options. Premiums are typically a few pounds a month lower than an equivalent level term, which adds up over a 25-year mortgage.

Family income benefit pays out monthly rather than as a lump sum. Self-employed clients often gravitate to this because it mirrors the way their household actually spends — replacing income rather than landing a large cheque that someone has to invest. Premiums tend to be lower than level term for similar headline value.

Whole-of-life cover continues for the rest of your life rather than for a fixed term, with a guaranteed payout whenever you die. It is more expensive because the insurer is certain to pay eventually, and it is generally used for inheritance tax planning or to leave a guaranteed legacy rather than as front-line family protection.

Over-50s plans accept applicants between roughly 50 and 85 with no medical questions, but the maximum sum assured is modest and most plans include a one to two year waiting period. They are aimed at funeral costs rather than mortgage protection, and for most self-employed people in their fifties a fully underwritten term policy will offer more cover for less premium.

Alongside life cover, two other policies come up regularly in self-employed conversations. Critical illness cover pays a lump sum on diagnosis of a listed serious condition, which can be the difference between recovering at home and being forced back to work too early. Income protection pays a monthly benefit if illness or injury stops you earning — and because you have no employer sick pay, it is arguably as important as the life policy itself for a sole earner.

We arrange life and income protection cover at LifePro, and most clients leave with at least one of each, layered to keep premiums in check.

Trust planning for self-employed life insurance

Putting a life insurance policy in trust is one of those administrative steps that costs nothing extra, takes about half an hour, and saves a family weeks of friction at the worst possible time. For self-employed clients — and especially limited company directors — it is almost always worth doing.

When a policy is written in trust, the payout sits outside your estate. That means it does not have to wait for probate, the trustees can pay funds straight to your beneficiaries, and the sum assured does not count toward the £325,000 inheritance tax nil-rate band. For a director with a six-figure relevant life policy and a family home that already eats most of the IHT allowance, that distinction can be worth tens of thousands of pounds.

Most insurers provide standard trust forms — discretionary, absolute or split — and our advisers will talk you through which form fits your circumstances. Relevant life policies are normally written in trust automatically; personal policies are not, and need a positive decision from you to set the trust up.

What underwriters ask self-employed applicants

Underwriting is the process insurers use to decide whether to offer cover, and at what price. For self-employed applicants the questions are mostly the same as for an employee, with a couple of extras worth flagging.

Income proof is rarely needed for standard life cover at sensible amounts. Insurers tend to take the figure you state at face value for cover up to around £500,000 to £1 million, although individual underwriting rules vary. Above those thresholds, or if the figure looks inconsistent with your stated occupation, an insurer may ask for SA302s, accountant references or copies of your accounts.

Income protection is different — the benefit is calculated as a percentage of earnings, so insurers always verify income before they will pay a claim. If income protection is on your list, keep two or three years of accounts to hand.

Occupation matters more than employment status. A self-employed accountant working from a home office is treated as a low-risk life. A self-employed roofer, scaffolder or electrician working at height will see slightly higher premiums on a like-for-like basis, regardless of how the work is structured legally. Insurers price the activity, not the tax code.

Irregular income is not a problem. Seasonal businesses, contractors with gaps between projects, and freelancers who have a strong year followed by a quieter one are all routine cases. Insurers want a fair representation of your typical earnings, not a guarantee that next month will look like last month.

How a broker shortens the process

You can buy life insurance directly from any UK insurer. The reason most self-employed clients use a broker like LifePro is simple time arithmetic — you compare once, with one set of disclosures, instead of repeating the same medical questions at five different websites and trying to read the small print between client calls.

Our protection team works across a wide range of UK insurers, including the names you would expect — Aviva, Legal & General, LV=, Royal London, Vitality and others. We are FCA-regulated, our advice is free to obtain, no obligation to buy, and we are paid by the insurer when a policy goes on risk rather than by you.

Practically, that means we can pre-underwrite tricky cases — directors with relevant life cover, applicants with a previous medical decline, trades working at height, smokers — before any formal application is made. It is a much shorter route to a sensible answer than DIY comparison sites.