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Life insurance for the self-employed: what do you need to consider?

Self-employment is an exciting venture, filled with autonomy, creativity, and the potential for financial success.  

However, along with the freedom of being your own boss comes the responsibility of securing your financial future and protecting your loved ones.  

If you’re self-employed, life insurance is a crucial part of your financial planning journey. 

In this guide, we will explore the importance of life insurance for the self-employed, how much coverage is needed and useful tips on how to get the best policy.

Summary

  • Life insurance for the self-employed is not only a means of protecting your loved ones but also a strategic investment

  • The two primary types you can take out are term life insurance and whole life insurance

  • Determining the right amount of coverage when you’re self-employed involves assessing various factors

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Why is life insurance important if you’re self-employed?

Being self-employed involves a set of unique challenges, from managing irregular income to shouldering the responsibility for the success of your business.  

While you build your enterprise, it's easy to overlook the importance of securing a financial safety net.  

Life insurance for the self-employed is not only a means of protecting your loved ones but also a strategic investment. 

What are the different types of life insurance if you’re self-employed? 

Understanding the types of life insurance available in the UK is crucial when finding a policy as a self-employed individual.  

The two primary categories are term life insurance and whole life insurance. 

Term life insurance 

Term life insurance provides coverage for a specified period, known as the term.

This can vary massively from five to 30 years. If you pass away during your policy term, your beneficiaries will receive a lump sum payout.

Term life insurance is a flexible and affordable option, making it suitable for the self-employed. 

Whole life insurance 

Whole life insurance offers coverage for your entire lifetime if you continue to pay the premiums.

It includes a cash value component that grows over time, so it provides protection and a savings element.

While whole life insurance is usually more expensive, it provides lifelong security and the potential for cash accumulation. 

How much life insurance cover do self-employed people need? 

Determining the right amount of coverage when you’re self-employed involves assessing various factors unique to your business and personal circumstances. 

Consider the following aspects when evaluating your life insurance needs: 

1. Income replacement

Calculate the amount needed to replace your income to ensure the financial wellbeing of your dependents and to cover business-related expenses. 

2. Business debt

If you have business loans or debts, factor this into your calculations.

Life insurance can prevent your business debts from becoming a burden on your loved ones. 

3. Key person insurance

For those who play a key role in their business, key person insurance provides coverage to the business in the event of their death.

This can help the business survive and recover from the financial impact of losing a crucial team member. 

4. Business succession planning

Consider how life insurance can be integrated into your business succession plan. Whether you’re passing your business on to a family member or selling it, life insurance can provide funds to aid a smooth transition. 

5. Employee benefits

If you have employees, consider if providing life insurance benefits as part of your employee benefits package is a strategic move for attracting and retaining talent. 

Tips for securing the best self-employed life insurance policy 

Securing affordable life insurance when you’re self-employed is achievable with the right approach. 

Consider the following tips to obtain coverage that aligns with your business and financial goals: 

1. Start early

The earlier you get a life insurance policy, the lower your premiums are likely to be.

Starting early can help you lock in lower rates, providing long-term financial security. 

2. Quit smoking

Smoking is a significant factor that can make life insurance more expensive.

Quitting smoking improves your health and can lead to lower insurance costs

3. Keep healthy

A healthy lifestyle, including exercising regularly and a balanced diet, can improve your overall health and potentially lower insurance premiums. 

4. Shop around for the best deal

Different insurers have various underwriting criteria and pricing structures.

Shopping around and obtaining quotes from multiple insurers is vital for finding the most competitive rates. 

5. Review your life insurance policy often

Regularly review your life insurance coverage to ensure it meets your evolving business and personal needs.

Life changes, such as business expansions or changes in personal circumstances, may require adjustments to your coverage. 

The strategic investment of life insurance for the self-employed 

Life insurance as a strategic investment

Life insurance for the self-employed is more than just a safety net.

It's a strategic investment in the future success of your business and the wellbeing of your loved ones.  

By understanding your unique challenges and opportunities, exploring various policies and tailoring your cover to support your business goals, you're a step closer to securing a stable financial future. 

Remember, life insurance is not just for the unexpected; it's a powerful tool for securing the longevity of your business and providing financial protection for those who matter most. 

Unbiased can quickly connect you to an insurance broker who can look at your circumstances and find the most competitive policy for you.

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About the author
Our team of writers, who have decades of experience writing about personal finance, including investing, retirement and pensions, are here to help you find out what you must know about life’s biggest financial decisions.