Contractor life insurance UK

There are many options available to contractors who’re seeking to take out life insurance.

With around 1.77 million contractors working in the UK[1], it’s crucial that these workers find the right cover to protect their loved ones.

Whether you’re a contractor in construction, IT, engineering, project management or design, there’s a life insurance policy to meet your needs.

This article will explore the various policy types that are available to contractors. Keep reading to find your ideal life insurance solution…

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Comparing quotes is the only way to ensure you’ve got the best deal on a policy that meets all of your needs.

Reassured can compare quotes from some of the UK's best life insurance providers.

We’re also on hand to provide you with all the information you need and answer any questions you might have.

And the best part is our life insurance starts from just 20p-a-day † .

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What is contractor life insurance?

Contractor life insurance is simply life insurance taken out by contractors to protect certain aspects of their lives.

For contractors, life insurance will typically be taken out in the form of a personal life insurance policy or through a relevant life insurance policy.

Personal life insurance is a standard life insurance policy that can be taken out via any provider or through a broker, such as Reassured.

A relevant life insurance policy is a policy taken out and paid for through a business, such as a limited company, and that can be claimed as a business expense.

Reassured can’t currently compare relevant life insurance policies but we can compare multiple personal life insurance policies to find you the best deal.

Do I need contractor life insurance?

Whether you need life insurance as a contractor will ultimately depend on your personal circumstances.

If you have a family and/or financial commitments to take care of you’ll likely benefit from having life cover in place.

The funds from a life insurance policy can help your loved ones to:

  • Pay off the mortgage (and remain in the family home)
  • Cover day-to-day family living costs
  • Cover the cost of your funeral (the average cost of a funeral now stands at £4,056[2])
  • Clear any outstanding debts in your name

Contractors who’re employed by an employer may benefit from death in service, this is an employee benefit that provides life cover in the form of a lump sum pay out (often a multiple of your salary) if you pass away while in service with your employer.

However, if you leave your employer (perhaps to start up your own company) you’ll lose this benefit. For this reason, it can be beneficial to secure your own personal cover even if you have death in service in place.

Contractors who’re self-employed, own a limited company or work for an umbrella company or agency won’t benefit from the financial safety net of death in service.

In particular, these workers may benefit from having life insurance in place to protect loved ones in the event of a worst-case scenario.

Life insurance helps to give you peace of mind that your loved ones will be taken care of financially should you pass away whilst cover’s in place.

Talking to an expert, such as Reassured, can help you to gather all the information you need to make a fully informed decision.

How much life insurance do you need?

Enter your financial commitments to understand the level of cover you require.

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£121,687 is the estimated average outstanding mortgage per household in the UK.

Our property is generally the largest financial commitment any of us will make.

Your life insurance should cover this significant debt should you no longer be around.
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According to Money Advice Service, full-time childcare in the UK now costs £242 a week.

The loss of a parent could result in the need for additional childcare whilst the surviving parent increases their hours to account for lost income.

Your life insurance cover should factor in this additional required outgoing.
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The average level of debt (minus a mortgage) in the UK is £15,385.

Factoring in any outstanding debts in your name when arranging life insurance ensures this burden is not passed to loved ones.
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You may wish to leave your loved ones an inheritance or lump sum gift upon your passing.

Factoring in the gift amount when arranging your cover will ensure the pay out amount will be sufficient to provide your loved ones with this selfless gesture.
£
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According to SunLife, the average cost of a UK funeral is now £4,417, whilst the total cost of dying is £9,493.

This is a 130% increase over the past 16 years and shows no signs of slowing down.

A significant cost which should be factored into the amount of life insurance you secure.
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If you are one of the 65% of the UK who are lucky enough to have savings, this could be used as protection if you were to pass away.

Any pay outs from existing life insurance policies and investments can also be used as financial protection for your loved ones if you were no longer around.

Factor this into your required cover amount.
£ -

Your total cover estimate

£ 0

Let us find your best quote.

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What’s the best life insurance for contractors?

The best contractor life insurance to meet your needs will depend on a variety of factors, such as:

  • What you’d like to protect - are you taking cover out to protect your family, a mortgage, funeral costs or all of these financial commitments?
  • Employment status - whether you’re self-employed, own a limited company, work with an umbrella company or for an agency may have an effect on what options are available to you
  • Additional cover - do you want to be protected in the event of illness? If so, additional cover options such as critical illness cover or contractors income protection may want to be considered
  • Budget - price can vary between the different policy types some options are more affordable than others. The right policy for you will be the one that offers the highest level of cover for the lowest price

Contractors with a limited company will be eligible to secure relevant life insurance, which provides tax-efficient life cover. Whereas sole traders and those who work for an umbrella company or agency may be better suited to a personal life insurance policy as they won’t be eligible for tax benefits.

It’s essential to be aware of all your options before jumping into the deep end, talking to Reassured can help you better understand what options are available to you.

Why not get in touch with a friendly member of the team?

Life insurance policies for contractors

As discussed above, the best contractor life insurance will be the policy that meets your needs and fits into your budget.

The policy options available to you include:

It’s not just a case of one policy or another, it’s completely possible to secure multiple policies if it’s within your budget.

For example, life insurance is commonly layered with critical illness cover or income protection to provide a comprehensive solution:

  1. A life insurance policy to protect your loved ones if the worst were to happen to you
  2. Critical illness cover or income protection to cover you during your working life

Let’s look into these policy types in more detail to see which option will be most suitable…

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Term-based life insurance

  • Affordable cover from 20p-a-day
  • Level and decreasing terms available
  • Cover for a specified period of time (up to 40 years)
  • Sum assured up to £1,000,000

Term-based life insurance provides cover for a specified period of time, this can be up to 40 years. Typically, cover comes with either level or decreasing terms.

Level term life insurance provides a fixed sum assured, whereas with decreasing term life insurance, your sum assured will reduce over time.

Due to the high sum assured potential with a level term policy, this type of cover is well suited to covering large expenses such as an interest-only mortgage or any other large debts.

On the other hand, a decreasing term life insurance policy is ideal for protecting a repayment mortgage as you can have your sum assured reduce in line with your remaining mortgage balance.

If you’re a sole trader or work for an umbrella company or agency, that may not be eligible for tax benefits, term life insurance may be a good option as it’s often the most affordable policy type and you can choose a policy length that may mirror your working life.

You’ll also benefit from terminal illness cover, which comes as standard with all term policies taken out through Reassured.

This will allow you to make an early claim on your policy if you’re diagnosed with a terminal illness and predicted to pass away within 12 months.

Why not use our award-winning broker service to compare both level term and decreasing term life insurance to find the best option to meet your needs?

Whole of life insurance

  • Provides lifetime cover
  • Loved ones are guaranteed a pay out
  • Cover amount up to £1,000,000
  • Possible to pay more in than sum assured

Whole of life insurance is actually a form of life assurance as you’ll be covered for life and your loved ones will be guaranteed a pay out.

Due to the length of the policy, if you’re taking out cover at a young age you could end up paying more into the policy than it will pay out.

For this reason, whole of life insurance may be well suited to contractors who’re later on in life who’d like to guarantee their loved ones an inheritance and cover funeral costs.

At Reassured we can compare whole of life insurance from some of the UK’s leading providers to find you the best deal.

Simply get in touch with a friendly member of the team for your free quotes.

Family income benefit

  • Monthly tax-free income payments
  • Ideal for family budgeting
  • Cover for a specified period of time (up to 40 years)
  • Payments up to £5,000 a month

Family income benefit differs slightly from traditional life insurance as, instead of a lump sum pay out, your loved ones will receive monthly (tax-free) income payments.

This can be up to a maximum amount of £5,000 a month and payments will continue until the policy expires.

For example, if you have a 30-year policy but pass away 10 years into the policy, your loved ones will receive monthly payments for the remaining 20 years of the policy.

Family income benefit could be an ideal option for contractors with young families who want to protect their future living costs.

Budgeting a large sum of money can provide additional stress for your loved ones at an already stressful time. So, by receiving monthly payments, the funds can easily be managed to cover daily living costs.

Contact Reassured Advice to compare family income benefit.

Relevant life insurance

  • Tax-efficient (can be claimed as an allowable business expense)
  • Ideal for contractors with a limited company
  • Policy is written in trust to avoid/minimise 40% inheritance tax
  • Includes terminal illness cover

Relevant life insurance is a type of policy taken out by a business or limited company to protect a specific person.

Policies often have a maximum term of 50 years, or until you reach a certain age (often this is 75 but can vary between providers).

If you’re a contractor who owns a limited company, this option can be funded by your business as premiums are corporation tax-deductible. This makes relevant life insurance a tax-efficient way for you to secure life cover.

The policy will be written in trust and any funds paid out to your loved ones may not form part of your estate, allowing them to be free of inheritance tax (this is typically charged at 40% above the £325,000 threshold).

Most relevant life insurance policies will also include terminal illness cover which will allow you to claim and receive an early pay out if you’re diagnosed with a life-threatening illness and given 12 months or less to live.

Unlike a standard life insurance policy, your level of cover will be based on your salary, with insurers paying out a multiple of your income (for example, Legal & General can pay out up to 25 times your income, including any bonuses, benefits, shares or dividends).

Unfortunately, relevant life insurance isn’t something that’s currently offered by Reassured. However, some of the UK’s leading providers, such as LV= and Royal London provide relevant life insurance plans.

Income protection

  • Protection from accident and sickness
  • Pays out up to 70% of your income
  • Short and long term options available
  • Affordable cover from 20p-a-day ‡

For self-employed contractors, income protection can be an essential financial safety net.

In contrast to life insurance, income protection won’t pay out if you pass away. Instead, you can make a claim and receive monthly pay outs in the event you become too ill or injured to work.

As self-employed workers won’t benefit from sick pay from an employer, income protection can help to support you financially by paying out up to 70% of your usual income if you became too ill or injured to work.

You’ll receive your payments in monthly (tax-free) instalments to help replace lost income.

Payments aren’t tied to any specific financial commitment so you’ll be able to use them however you see fit, this could be to cover:

  • Mortgage and rental payments
  • Childcare costs
  • Transportation costs
  • Debt and loan payments
  • Bills
  • Food shop
  • Leisure/travel expenses

You can choose from short-term cover, which will cover you for a maximum of up to 2 years, or long-term cover which can cover you up until retirement age - providing you with cover for your whole working life.

To compare income protection quotes from all of the UK’s leading providers, as well as smaller specialists, contact Reassured Advice.

Are you a self-employed contractor? Check out our complete income protection for self-employed guide »

Critical illness cover

  • Early pay out if you’re diagnosed with a serious illness
  • Covered for a wide range of illnesses
  • Add on to your life insurance policy
  • Cover available up to age 70

Similar to income protection, critical illness cover can help you to replace lost income if you become too ill to work.

Critical illness cover can be purchased with a life insurance policy for an additional fee. It will then allow you to make an early claim on your policy if you were to be diagnosed with a serious illness (that’s listed within the policy).

You’ll receive the lump sum pay out from your policy which can be budgeted to help you make ends meet while you’re off work.

The funds can also be used to help pay for any private medical care, make any necessary adaptions to your home or pay for carers.

Compare multiple life insurance with critical illness cover policies using our award-winning broker service.

How much is contractor life insurance?

The price you pay for life insurance will vary from person to person. This is because insurers will take your personal circumstances into consideration when calculating your premium.

Information required at the point of application includes:

This, along with details about your policy such as length of cover, policy type and sum assured, will help insurers to determine how much you’ll pay for your premium.

Details about your job may also need to be taken into consideration, as those with high-risk occupations may pay more for their premiums than someone with a low-risk job.

For example, a contractor in the construction industry may pay more for their premiums than an IT contractor due to the increased risk involved in their job.

The table below shows the average price for the common types of life insurance.

Quotes are based on a non-smoker in good health and working in a low risk environment for £100,000 of cover over a 20-year term (for level and decreasing cover, whole of life cover has no term):

 Age Level term Decreasing term Whole of life
20 £4.10 £4.55 £61.39
25 £4.99 £4.93 £65.43
30 £5.29 £4.99 £72.10
35 £6.20 £5.15 £84.56
40 £8.19 £6.23 £103.03
45 £11.19 £8.49 £126.75
50 £18.12 £11.89 £150.17


Comparing quotes is the best way to ensure you secure the most cost-effective policy.

Our award-winning life insurance broker service can compare quotes without charging you a fee.

Can I pay for life insurance through my business?

Yes, it’s possible for contractors to pay for life insurance through their limited company.

This will only be possible in the case of a relevant life insurance policy, as this policy is paid for through your company and is tax-deductible.

A personal life insurance policy (such as term or whole of life) is not classed as a business expense and therefore can’t be purchased through your business.

You’ll need to pay for any personal cover using your own funds.

Is life insurance tax deductible?

Yes, some forms of life insurance can be tax-deductible, such as a relevant life insurance policy.

This is because the premiums for a relevant life insurance policy will be paid for through your company and considered by HMRC to be a legitimate business expense.

This allows the premiums paid by the business to benefit from tax relief.

Unfortunately, a personal life insurance policy (such as any of the policies mentioned in this article) won’t be tax-deductible.

Life insurance for a limited company

If you’re a contractor with a limited company, the most suitable policy will likely be a relevant life insurance policy.

This is because a relevant life insurance policy can be paid for by your limited company and the premium payments will be treated as an allowable business expense, making them tax-deductible.

This offers a tax-efficient way of securing life insurance as a contractor.

However, while relevant life insurance often includes terminal illness cover, it doesn’t include any critical illness cover or income protection.

For this reason, you may choose to layer a relevant life insurance policy with either a separate income protection or critical illness cover policy to provide an all-encompassing solution.

Reassured Advice can do the hard work for you and compare income protection quotes.

Contractor life insurance in trust

Writing your policy in trust allows your loved ones to make the most of your self-less investment.

There are three main benefits to writing your life insurance policy in trust.

  1. Avoid/minimise 40% inheritance tax for your loved ones - if a policy isn’t written in trust, it will form part of your estate. If you own property or have other funds in your name, adding a life insurance pay out to this can easily take it over the inheritance tax threshold
  2. Have greater control over your pay out - your trustee will be in charge of distributing your pay out as per your wishes so you can decide who gets the funds, how much they get and when you’d like them to receive it
  3. Help loved ones avoid a lengthy probate process - for policies not written in trust, your beneficiaries must wait until probate has passed until they receive any funds. This could take between 6 - 9 months, if any disputes arise it could take even longer

All relevant life insurance policies are written in trust, allowing your beneficiaries to avoid/minimise inheritance tax.

At Reassured we provide a free trust writing service with most of the policies that we provide.

Our customer services team will be happy to take you through the process, simply get in touch today.

Top tips for contractors when taking out life insurance

  • Compare a range of policies and speak to an expert, like Reassured, to gather all the information you need about your available options
  • If you’re eligible for tax benefits, consider a relevant life insurance policy as your premiums will be paid for by the business as an allowable business expense (tax-deductible). Please note, we don't offer relevant life insurance
  • Keep life insurance premiums low by leading a healthy lifestyle and quitting smoking
  • It’s completely possible to secure more than one life insurance policy if it’s within your budget. This could be a relevant or term life insurance policy, alongside an income protection policy to provide financial protection in both life and death
  • Write your life insurance in trust to avoid/minimise 40% inheritance tax

Compare contractor life insurance quotes

Comparing quotes is the key to securing the best policy to meet your needs, at the best price.

Unfortunately, we can’t compare relevant life insurance plans but we can compare individual life insurance plans to help you find the best deal.

Why not chat with our team of life insurance experts who can provide you with all the information you need to make a fully informed decision.

Our broker service is award-winning and FCA-regulated and we don’t charge a fee for our quotes.

Simply get in touch and protect your loved ones from just 20p-a-day.

Compare Contractors Life Insurance »

Sources:

[1] https://www.itcontractorsuk.com/top-contracting-facts-figures-2018.php

[2] https://www.sunlife.co.uk/siteassets/documents/cost-of-dying/cost-of-dying-report.pdf/

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