If you run your own business as a sole trader or self-employed professional, it can be easy to put off personal financial planning. However, one crucial question that often arises is whether or not you need life insurance.
The short answer? Yes – and possibly more than most. When you work for yourself, there’s no employer safety net. That means your income, family, and even business can all be at risk if something unexpected happens.
This blog will break down why life insurance is essential for sole traders and self-employed individuals, outline your options, and guide you in choosing the right type of cover.
Why life insurance matters when you’re self-employed
As a sole trader or self-employed person, your income depends entirely on your ability to work. If you die or become seriously ill, the financial consequences can extend far beyond your business.
Life insurance gives you a way to protect the people who rely on you, whether that’s a partner, children, or even employees and clients.
Here are some reasons you might need life insurance:
- To replace lost income for your family
- To pay off personal or business debts
- To fund childcare, education, or living costs
- To keep a business running during difficult times
- To avoid passing financial burdens onto loved ones
Unlike employees of a large company, you don’t have benefits like death in service cover or sick pay to fall back on. Life insurance helps fill that gap.
What type of life insurance should self-employed people consider?
There’s no one-size-fits-all solution, but here are the most relevant types of cover for sole traders and self-employed individuals in the UK:
1. Level term life insurance
What it is: A policy that pays out a fixed amount if you die during a set term.
Why it’s useful: Great for protecting your family from the loss of your income.
Who it suits: Anyone who wants to provide a lump sum to their dependents.
2. Decreasing term life insurance
What it is: A policy where the payout reduces over time, usually aligned with a mortgage.
Why it’s useful: A budget-friendly way to make sure your home is paid off if you die.
Who it suits: Sole traders with a repayment mortgage.
3. Critical illness cover
What it is: Pays out a lump sum if you’re diagnosed with a serious illness like cancer, heart attack, or stroke.
Why it’s useful: Gives you time and money to recover without worrying about income.
Who it suits: Anyone whose business depends on their ability to work.
4. Income protection
What it is: A monthly payout if you’re unable to work due to illness or injury.
Why it’s useful: Replaces a portion of your income while you recover.
Who it suits: Self-employed individuals who rely solely on themselves for income.
Note: If you’re a sole trader, you won’t qualify for business-specific policies like relevant life insurance or business loan protection. These are only available to limited companies.
How to choose the right cover
Step 1: Consider who depends on you
Do you have a family? Children? A partner who relies on your income? If yes, a term life insurance policy is essential.
Step 2: Look at your debts
Include personal loans, mortgages, and any business debts in your name. Ensure your policy provides sufficient cover to clear these.
Step 3: Think about your lifestyle
If your family couldn’t maintain their standard of living without your income, consider a family income benefit or income protection.
Step 4: Get advice if you’re unsure
Self-employed finances can be complex. A financial adviser or protection specialist can help you tailor the right policy to your needs.
FAQs
Can I get life insurance if I’m self-employed?
Yes. Being self-employed doesn’t limit your access to personal life insurance. You can apply directly through a provider or broker, just like anyone else.
Can I put my life insurance through my business?
Only if you run a limited company can sole traders access relevant life insurance. Still, they can claim some personal insurance costs as business expenses if they relate to income protection. Consult with your accountant to determine what’s allowable.
Is income protection better than life insurance?
They do different jobs. Life insurance protects your family if you die. Income protection helps you if you become too ill to work. Many self-employed people benefit from having both.
How much life insurance do I need?
That depends on your debts, dependents, and income. A good rule of thumb is to aim for 10–15 times your annual income or enough to cover your mortgage and provide for your family.
Final thought
If you’re self-employed or a sole trader, life insurance is a key part of protecting everything you’ve worked hard to build. Without employer benefits, you’re responsible for your safety net – and that includes making sure your family isn’t left exposed if something happens to you.
Whether you need life insurance, critical illness cover, or income protection, the right policy can provide you with peace of mind and long-term security.
Want help figuring out which cover is best for your circumstances? Please speak to one of our advisers today for a personalised recommendation.
