Self-employment is great for freedom and flexibility. But there’s a downside: being your own boss means you won't have any financial protection unless you make your own arrangements. But do you actually need life insurance if you’re self-employed? Our guide will explain all.

What is life insurance?

Life insurance pays out an agreed lump sum if you die while covered by the policy. You pay monthly premiums to get this financial protection, which makes sure your loved ones would be able to cover their ongoing living costs – from household bills to paying the rent or mortgage – if you died. Read more about how life insurance works here.

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

It depends on your circumstances. Regardless of your work status, the most important consideration is whether you have any financial dependents who might struggle financially if you died. Grisly as that may seem, your death could leave a financial shortfall for your loved ones if you don’t have provisions in place.

A life insurance cash payout could help your partner, children or chosen dependents with ongoing living costs – from paying the mortgage or rent to covering any other day-to-day expenses. Whether you’re a freelancer or a permanent staffer, life insurance is definitely something to consider if you've got dependents.

Why life protection matters for the self-employed

Life insurance is particularly important for self-employed people because you won’t automatically have the same financial protections as a permanent employee. If you’re a permanent employee, you may have death-in-service benefit, for example – a perk that some employers provide. With this benefit, your family will receive a multiple of your annual salary if you die while you’re employed by the company.

If you’re self-employed, you definitely won’t have this. But if you have dependents who’d struggle to pay the bills or other day-to-day expenses without your income, life insurance can provide the peace of mind that they'd be able to cope financially if you died. So if you’re a freelancer, consultant or contractor, it’s a good idea to think about getting a life insurance policy to give your nearest and dearest a financial safety net.

Other insurance to consider if you're self-employed

It's not just death-in-service you'd be without as a self-employed worker, but other employer benefits like paid holiday, sick pay, and time off for emergencies. So there are other types of insurance besides life insurance you could consider if you're self-employed – to make sure you’re protected in any eventuality. Other options include:

Income protection insurance

Taking out income protection means you’re covered in case you’re unable to work for medical reasons. In exchange for paying monthly premiums, you’ll receive a monthly payout if you can’t work because of your physical or mental health. As a self-employed worker, income protection insurance can compensate for not having sick pay, helping to cover your and/or your family’s essential living costs in hard times. Read more about income protection for the self-employed.

Critical illness cover

Taking out critical illness cover means you’re covered in case you’re diagnosed with a critical illness or condition. You’ll receive a cash sum if you’re diagnosed with one of the illnesses or conditions listed in your policy. You can buy critical illness cover as a standalone policy, or as an add-on to your life insurance. Again, the benefit for self-employed people who don’t have sick pay is that you’d be able to support yourself and your loved ones financially while you recover or adjust. Read more in our complete guide to critical illness cover.

Self-employed? Let's work out whether you need life insurance, starting with your age:
  • If you’re self-employed, you won’t automatically have protection in place in case you die or become too ill to work – e.g. death-in-service cover or employer sick pay
  • Life insurance can help make sure your financial dependents would be provided for if you died
  • Income protection makes sure you’ve always got money coming in, even if you can’t work for health reasons – particularly important if you don’t have sick pay
  • Critical illness cover provides a financial cushion if you’re diagnosed with an illness or condition – again important for the self-employed who don’t have sick pay
What is life insurance?
An insurance policy that pays out a tax-free lump sum to your partner or family if you die. It’s designed to make sure your loved ones would be financially secure without you and your income.
Who needs life insurance?
Anyone who has financial dependents. In other words: other people who rely on your income. If you have a partner or children who’d be financially affected by you dying, you should consider having some life insurance in place.
How much does life insurance cost?
Life insurance is often very affordable, but the cost differs per person. This is because it depends on the cover you buy and how much of a risk you are to insure (based on your age, health and lifestyle). It’s cheapest when you’re young, fit and healthy.
Does life insurance always pay out?
Life insurance will pay out if you die while you’re insured and you were honest about your health when you applied. It won’t pay out if you die after your policy runs out or you cancel your policy – and might not if you meet an exclusion (e.g. many insurers exclude death by suicide within the first year of taking out the policy).
Is it easy to claim?
Claiming on a life insurance policy is straightforward – your partner or family simply claim directly with your insurance company. Making sure they know about your policy and have the details in case the worst happens can be helpful.