Life insurance for self-employed people

Do I really need life insurance if I’m self-employed?

It might be tempting to think self-employed people don’t need life insurance and it’s just for those with a 9-to-5 job. But it’s just as important, perhaps more so, if you work for yourself.

Unlike if you’re employed, there’s no death-in-service payout if you die while working. And, regardless of your employment status, you could have lots of reasons to take out cover:

• Debts like a mortgage may still need paying after you’re gone
• Your partner or children might rely on your income to keep their lifestyle going
• You might not have enough money in savings to cover these demands for long

If your income helps support others, it’s smart to think about what would happen if it stopped suddenly.

Types of life insurance

There are three main types of life insurance to think about.

Decreasing term life insurance

This type of life cover is good if you have a repayment mortgage or other long-term loan.

• The payout amount goes down over time
• This matches the way your mortgage balance also goes down
• It’s usually the cheapest option because the payout gets smaller each year
• It’s designed to help your family pay off your mortgage if you die

If you have a mortgage and want to make sure your family won’t lose their home, this type of policy is made for that.

Just be aware that most policies set a limit on the mortgage interest rate they’ll cover. If your mortgage rate is higher than that, there’s a chance it won’t fully pay off your loan.

Read more about decreasing term life cover

Level term life insurance

With level term life cover:

• The payout stays the same for the whole policy
• You choose the amount it pays out when you apply
• Your monthly payments stay the same too

This kind of cover is useful if you want your family to get a fixed amount of money no matter when you die during the policy. That money could help with things like:

• Day-to-day living costs
• Childcare or school expenses
• Funeral costs
• Paying off credit cards or loans

It’s a simple option if you want to leave behind a certain amount to support your family.

Read more about level term life cover

Increasing term life insurance

This cover is made to make sure the lump sum payout keeps up with rising prices.

• The payout goes up a bit every year in line with inflation
• Your monthly payments go up too
• It helps make sure the money your family gets will still go far in the future

It’s a good choice if you’re worried that what seems like enough money now won’t be enough in 10 or 20 years. Just remember that the yearly increase makes this the more expensive type of term cover over time. Make sure you’re happy with a premium that grows each year.

Read more about increasing term life cover

What else should I think about if I work for myself?

Being self-employed means you have to plan ahead. There’s no boss to give you sick pay or help with problems, so you need to build your own safety net. Part of it might include other cover options.

Critical illness cover

Critical illness cover is something you can add at an additional cost when you take out a life insurance policy with Post Office.

It gives you a payout if you’re diagnosed with a serious illness that’s covered in the policy. This can help you:

• Pay bills if you can’t work
• Cover the cost of treatment or care
• Keep your business going while you recover

Let’s say you’re a self-employed plumber and you’re diagnosed with cancer. You may need to stop working for months while you get treatment. With no employer to pay sick leave, you could struggle to pay the bills. Critical illness cover gives you a financial cushion so you can focus on your health, not money worries.

Read more about critical illness cover

Insurance if you work from home

Many self-employed people work from home. But standard home insurance doesn’t always cover your business equipment or workspace.

For example, your laptop, tools or stock might not be covered if they’re damaged or stolen. You might not be protected if clients visit your home, either.

To stay safe:

• Check if your home insurance includes cover for business use
• Ask about cover for business equipment like laptops, printers or tools
• Tell your insurer if you see customers, clients or delivery drivers at your home
• Add extra cover if needed for stock, supplies, or materials you keep at home

Some providers also offer public liability cover, which helps protect you if someone is hurt at your home while visiting for business reasons.

Common mistakes to avoid when buying life insurance

It’s easy to make little mistakes when choosing or managing a policy that can leave your loved ones short if they ever need to claim. Here are three to watch out for:

• Underestimating the cover you need: Lots of people choose less cover than they really need or buy cheap life insurance just to save money. But this might not be enough for your family. According to MoneySavingExpert, a good rule of thumb is to choose a policy that pays out around 10 times your yearly income
• Choosing the wrong type of policy: Don’t just pick the cheapest option. Make sure the policy suits your financial situation and long-term goals. Read more about the different types of life insurance to help you choose
• Not reviewing your policy regularly: Life changes over time. Things like getting married, having children or buying a house mean you might need more cover. It’s a good idea to check your policy every few years to make sure it still gives you the right protection