Being self employed often means you have a never ending list of things to do! But most self employed workers don’t have the most basic form of insurance, leaving millions of people vulnerable every year. Does Life Insurance give them the protection they need? Let’s find out..
Why are self employed workers more at risk?
A normal worker will usually get two key benefits from their employer:
- Sick pay: If you’re off work, your employer is required to continue paying you for a period of time.
- Death in service: Paid by your employer to your family if you were to pass away, (usually a multiple of your annual salary).
Unfortunately, self employed workers miss out on these two key protections, putting them at huge financial risk. This is only made worse by the fact that many self-employed professions involve higher risk of injury; working from heights or heavy loads etc.
Of the 4.95 million self-employed individuals in the UK, 920,000 work in construction – the highest number of self-employed workers in any sector. [A]
[A]https://www.gosimpletax.com/insights/self-employment-statistics#:~:text=Of%20the%204.95%20million%20self,%E2%80%9COther%20services%E2%80%9D%20with%20588%2C000
What is self employed Life Insurance?
Self employed Life Insurance is a form of financial protection that pays a tax-free lump sum to your family when you die. You’ll usually pay a fixed fee each month (known as a premium) to your insurer in return for this protection.
Is Life Insurance worth getting if you’re self employed?
Almost certainly. It helps to think about the costs your family would have to cover if you were gone. For example:
- Replace a lost income – £231,713 average cost of raising a child[A]
- Meet mortgage repayments – £131,724 average UK mortgage debt[B]
- Cover the cost of your funeral – £9,263 average total cost of dying[C]
[A] http://www.childhoodbereavementnetwork.org.uk/research/key-statistics.aspx
[B] https://www.finder.com/uk/life-insurance-statistics/
[C] SunLife (2021), Cost of Dying Report, sunlife.co.uk/costofdying2021
If your loved ones would struggle to cover these types of costs you should get insured.
How much does self employed Life Insurance cost?
It depends on a lot of different factors. The average cost of life insurance in the UK varies from £30.40[A] to £13.24[B] depending on what research you look at.
[B] https://www.moneysupermarket.com/life-insurance/
The amount you pay each month is mostly influenced by:
- your age
- your health
- How much cover do you need?
- Type of policy
- How long do you want the cover to last (term)?
- your lifestyle (including whether or not you’re a smoker).
How much cover does a self employed worker need?
As a rule, most self employed workers should purchase roughly 10X their income. But it also depends on your circumstances. You could also calculate the amount of cover you need based on:
What you want to protect
- Your salary
- Your profession
- Existing mortgage
- Family living expenses
- Child care costs
- Education
- Funeral costs
- Additional debts
How long do you want the cover to last?
- Until your mortgage is paid off
- Until your children are financially independent
- Until you retire
For example, if you’re 30 years old & earn £30,000 a year, but want to cover your income until you retire at 50, you could use the following workings:
Target retirement age [50 year old] – Your current age [30 years old] = 20 years remaining in work
£30,000 annual income x 20 years you would have remained in work = £600,000 of cover needed.
If you don’t want to calculate the amount of cover you need manually, you can always a free online cover calculator like this one: https://www.legalandgeneral.com/life-cover/articles-and-guides/life-insurance-guides/life-insurance-calculator/
Great, what’s the best way of finding self employed Life Insurance?
Finding Life Insurance is straightforward. You use an online comparison site or go straight to a larger insurer for a quote. What’s important is that you find a policy that provides the level of protection you need. That’s why it’s usually best to go through a certified Life Insurance broker.
Specialist self employed Life Insurance brokers like Neilson Place compare the whole market for you & offer free impartial advice – so you don’t have to go it alone.
What comes after Life Insurance?
Self employed Life Insurance covers the basics & goes a long way to helping your family if the worst happens – but it doesn’t cover everything. It’s also important to check the fine print of your policy so you’re aware of any exemptions (If you use a broker they’ll do this for you).
Self employed workers should also think about other forms of insurance like Income Protection, that payout in the event you’re unable to work. Acting as a replacement for employer sick pay.
