Life Insurance For Self-Employed People
Running your own business comes with many responsibilities, but one area that’s often overlooked is protecting yourself and your family financially. Unlike employees, self-employed people usually don’t receive death-in-service benefits or employer-funded life insurance. That means arranging your own protection can be one of the most important financial decisions you make, particularly if your family depends on your income or you have a mortgage to repay.
In this guide, we’ll explain how life insurance for self-employed people works, whether it’s tax deductible and how to choose the right policy for your circumstances. Choosing the right policy can provide valuable peace of mind, knowing that your loved ones could be financially protected if the unexpected were to happen.
Key Takeaways
- Life insurance can provide valuable financial protection for self-employed people and their families.
- Most self-employed business owners need to arrange their own life insurance cover.
- The right policy depends on your family, mortgage and financial commitments.
- In most cases, personal life insurance is not tax deductible for self-employed individuals.
- Professional advice can help you choose the most appropriate cover.
Why Is Life Insurance Important For Self-Employed People?
When you’re self-employed, your income often supports not only your household but also your business.
If something were to happen to you, your family may need to continue paying:
- Your mortgage
- Household bills
- Business commitments
- Children’s living or education costs
- Other outstanding debts
For many self-employed people, losing the main source of household income could have a significant impact on their family’s financial security. Life insurance for the self-employed can provide a tax-free lump sum to help ease the financial burden on those you leave behind.
What Is The Best Life Insurance For Self-Employed People?
There is no single policy that’s best for everyone.
The best life insurance for self-employed people depends on factors including:
- Your mortgage
- Your income
- Your family situation
- Whether you have business partners
- Your long-term financial goals
There isn’t a one-size-fits-all solution. The right policy should reflect your personal and financial circumstances rather than simply being the cheapest option available. For many homeowners, decreasing term life insurance provides an affordable way to protect a repayment mortgage, while level term life insurance may be more appropriate for family protection or an interest-only mortgage.
Is Life Insurance Tax Deductible For Self-Employed People?
One of the most common questions we hear is:
“Is life insurance tax deductible for self-employed people?”
In most cases, premiums for personal life insurance are not tax deductible for self-employed individuals in the UK because they’re generally treated as a personal expense rather than a business expense.
However, tax rules can vary depending on how your business is structured and the type of policy involved. If you have questions about tax treatment, it’s always worth speaking to a qualified accountant or tax adviser.
What Type Of Life Insurance Should A Self-Employed Person Choose?
The most suitable policy will depend on what you’re trying to protect.
Some of the most common options include:
- Decreasing term life insurance
- Level term life insurance
- Whole of life insurance
Many self-employed people also choose to combine life insurance with:
Together, these products can provide more comprehensive financial protection. Many self-employed people choose a combination of protection products to help safeguard both their family and their business.
How Much Life Insurance Do I Need?
There is no one-size-fits-all answer.
You may wish to consider:
- Your outstanding mortgage
- Household expenditure
- Outstanding business loans
- Future family living costs
- Children’s education
- Existing savings and investments
Reviewing your financial commitments carefully can help determine an appropriate level of cover. Reviewing your cover every few years, or after major life events, can help ensure it continues to meet your needs.
Common Mistakes Self-Employed People Make
Some of the most common mistakes include:
- Assuming life insurance isn’t necessary
- Choosing cover based purely on price
- Not reviewing policies after major life events
- Forgetting to protect business debts
- Not considering critical illness cover or income protection
- Assuming workplace benefits provide enough protection
Avoiding these mistakes can help ensure your protection remains appropriate as your business and family circumstances change.
Why Professional Advice Matters
Choosing the right self-employed life insurance policy can feel confusing, particularly if your income varies from year to year.
An experienced adviser can help you:
- Choose the right type of cover
- Decide how much protection you need
- Ensure your mortgage is protected
- Review existing policies
- Consider additional protection if appropriate
Oportfolio Insight
At Oportfolio Mortgages, we regularly help self-employed clients arrange both mortgages and protection. In our experience, many business owners spend years building successful businesses but overlook protecting the people who depend on them financially. Choosing the right life insurance can provide valuable peace of mind for both you and your family.
Speak To Oportfolio Mortgages
If you’re self-employed and would like advice on life insurance, we’re here to help. Our advisers can explain the different options available, we’ll take the time to understand your circumstances before recommending protection that’s tailored to your mortgage, your business and your family’s future.
