Life Insurance for Contractors

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Life Insurance for Contractors: what are the options? 

Life insurance is an important form of cover that’s designed to give you peace of mind. It means that in the event of your death the people left behind gain a financial lump sum, which can relieve some of the strain at a very stressful time. For contractors there are a few things to explore when considering life cover.

What is Life Insurance?

Life insurance is a financial product that pays your partner or family an agreed sum of money should you pass away during the term of the policy. Some policies will release the funds if you develop a critical illness. 

With life insurance you pay a set monthly premium during the policy term, and in return you are covered for a certain lump sum that will make life a little easier for your loved ones.

The amount of cover and the premium depend on your individual circumstances and the type of policy you choose. Your life insurance quote will be based on your medical history, age and lifestyle factors. Typically, the younger and healthier you are, the cheaper your quote will be.

What types of life insurance cover are there?

There are different types of life cover to suit different situations: 

Term assurance

Term life insurance is the most common form of cover. You specify the sum you want cover for and how long the policy will last. If you die within the term, the policy pays out to your beneficiaries. Many people take out term assurance alongside their mortgage, to ensure that their house will be paid for if they die before the end of the mortgage term.

Whole of life policies

These policies provide cover for your whole life and pay out on your death, no matter when that may be. Because a payout is ultimately guaranteed, whole of life policies are more expensive than term assurance. 

Subcategories of life insurance cover

Within these broad types of cover, there are three different options: 

Level term 

The lump sum paid on death remains the same throughout the policy term.

Decreasing term 

The payout decreases over the term of the policy, making it particularly suitable to run alongside a capital repayment mortgage.

Increasing term 

The amount of cover increases over the term, usually in line with inflation.

Family income benefit plan

Rather than paying a lump sum, this type of cover pays your family a monthly income for a set period of time.

Relevant life cover

This is a fairly new option for life insurance and is a tax-efficient way to buy life insurance through a limited company. This option is becoming popular with contractors and other small businesses. If your partner is employed by your company, you can cover them with a Relevant Life insurance policy too.

Why is it important for a contractor to have life insurance?

Life insurance is an important product for people in all walks of life. Like any form of insurance, it provides a safety net in case things go wrong. For contractors, it can be even more important because, unlike a corporate employee, you don’t automatically receive perks like private healthcare and death in service benefits. 

Many contractors are the primary earners for their household and so, if something were to happen to you, there could be major financial consequences for your partner and children. Life insurance is there to ease that pressure.

Can you include life insurance cover as a business cost?

Limited company contractors can buy life insurance through their business by purchasing Relevant Life Cover. There are various positive elements to this approach:

  • Tax relief – premiums are tax deductible, so they can slightly reduce your corporation tax bills. The premiums are a business expense, paid directly by your limited company.
  • There are no Benefit in Kind charges: no income tax or National Insurance Contribution (NIC) costs apply for Relevant Life cover.
  • 25 times your earnings: You can plan a payout of up to 25 times your annual income, including salary and dividends
  • You can take out a policy for your spouse or partner if you employ them in your limited company
  • Your dependants won’t pay inheritance tax on the lump sum payout, as the policy is shielded by a discretionary trust arrangement
  • Your policy continues if you move back into permanent employment, with no need for  new underwriting or medical examinations.

How can Protection Matters help?

There are many different ways for contractors to arrange life insurance, and choosing the type of product and level of cover are important decisions. It can be stressful and time-consuming to compare all the options, and especially when you are keeping an eye on ways to save tax as well as give your family the best level of support.

Protection Matters are here to do all the hard work for you, whether you’re a sole trader or a company director. We’ll explore your specific situation and cover requirements, and recommend suitable products. We’ll even manage the application process for you. For an introductory chat, with no obligations, get in touch with us today.