Life cover for contractors

The harsh reality for contractors, is that it’s up to you to provide for your family in the event of your death.

Regardless of whether you work through a limited company or as an employee under an umbrella company, you will not have the protection of a ‘death in service’ benefit.

The solution is contractor life cover. Freelancer Financials offers a number of life policies tailored to your specific circumstances, and our expert broking team is on hand to advise you how best to build a “safety net” for your loved ones.

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How life cover can be your family's financial safety net

Contractors face unique challenges when it comes to financial planning and protection. The absence of employer-provided benefits means taking personal responsibility for safeguarding your family’s future.

Life insurance for contractors isn’t merely a financial product, it’s a promise to your family. It gives reassurance that, should you die, your loved ones will have the means to maintain the family home and face the future with confidence.

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Life insurance for contractors

Types of life cover available to contractors

Contractors have several options when it comes to life insurance, each tailored to different requirements and circumstances:

Decreasing term assurance (also known as mortgage protection insurance) 
These policies are designed to cover the cost of paying off your outstanding mortgage debt, so the premiums reduce over time.

Level term assurance
Designed to cover you for a fixed sum over a specified period of time, level term assurance is ideal for contractors with financial responsibilities.

Family income benefit
A specialised form of term life assurance that provides a regular, tax-free income to your beneficiaries rather than a lump sum.

Decreasing term assurance for contractors also known as mortgage protection insurance

Your premiums reduce over time as you pay off your mortgage

Decreasing term life assurance is a policy designed to cover the costs of a repayment mortgage in the event of your death during the policy term. It protects your family home in the event of the worst, giving you peace of mind that there will always be a roof over their heads - this is why it is also known as mortgage protection insurance. As you pay off your mortgage, your premiums will decrease as the amount owing falls. So the costs of decreasing term policies are lower than other forms of life insurance, but the coverage is also lower, especially towards the end of the term.

The payout typically covers your mortgage alone

Many contractors will take out a decreasing term assurance policy for the length of their mortgage in order to secure their home. However, the amount of cover (the sum paid out if you die during the term of the policy) is typically restricted to the remaining amount owing on your mortgage, as it falls over time. This means there will be no additional cover for funeral costs, outstanding debts or any other expenses your loved ones will face after your death.

Limited company contractor? Your premiums may be treated as a tax-free business expense

As with level term life assurance, limited company contractors can pay for a decreasing term assurance policy through their company as the premiums are treated as a legitimate business expense which can be deducted from company profits before tax. This is known as a Relevant Life Insurance policy. In these cases the policy is taken out by the company rather than the individual.

If you survive the term, there is no payout

As with all term assurance policies, if the term ends and the policyholder is still alive, the coverage ends unless the policy is renewed. The renewal premiums will will inevitably be higher, to reflect your increased age. There is also no cash in value at any time during the term (after the cooling off period at the start of the policy).

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Level term assurance for contractors - the pros and cons

Your premiums are fixed

Level term life assurance pays out a set lump sum to your beneficiaries in the event of your death during the policy term. The monthly premiums are fixed for the duration of the term, so do not rise as you get older.

The payout may be eroded by inflation

The sum paid out if you die during the term of the policy is known as the amount of cover. Level term policies pay the same amount of cover throughout the duration of the policy. Consequently, this fixed amount may not keep pace with inflation over time. This should be taken into account when considering family expenses such as school fees, or your children's higher education costs.

Limited company contractor? Your premiums may be treated as a tax-free business expense

If you are a limited company contractor, your premiums are treated as a legitimate business expense can be deducted from your profits before tax. This is known as a Relevant Life Insurance policy. In these cases the policy is taken out by the company rather than the individual.

If you survive the term, there is no payout

As with all term assurance policies, if the term ends and the policyholder is still alive, the coverage ends unless renewed. The renewal premiums will will inevitably be higher, to reflect your increased age. There is also no cash in value at any time during the term (after the cooling off period at the start of the policy).

What is Family Income Benefit (FIB)

Family Income Benefit, or FIB, is a type of term insurance that can help contractors support their families, should they die during the policy term.

Monthly payments for the duration of the policy
The key benefit of FIB is that, in the event of your death (or in some cases, terminal illness), your family will receive a monthly income for the remainder of the policy term. This is ideal for contractors with young families and can be used to fund housing costs, everyday bills, school fees etc. 

A fixed level of cover, set in advance
The regular payments (known as the level of cover) your family would receive are fixed in advance, as are the premiums. Therefore the value may be eroded by inflation and you should think carefully about setting the total level of cover that is right for you. Contact our specialist protection team here for expert advice.

Payments cease at the end of the term
You should be aware that FIB payments will cease at the end of the term insured, meaning that should your death occur towards the end of the policy, the total amount paid-out will be considerably smaller.

 

 

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    Getting the right cover and the right advice

    As a contractor, it’s important to seek cover that works for your specific financial circumstances and working arrangements.

    Factor you should consider when choosing life cover

    • Your current income and future earning potential
    • Outstanding debts and financial obligations such as your mortgage
    • Long-term family expenses (e.g., education, retirement planning)
    • Ensuring your policy is structured for maximum tax efficiency (for limited company contractors)

    Take the time to explore your options and get expert advice from our specialist team. The right life cover policy will not only protect your family and give you peace of mind, but also complement your overall financial strategy as a contractor.

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    Ready to secure the life cover you need to protect your family's future?

    Choosing the right life cover can give you real peace of mind, knowing that your family will be financially secure in the event of your death or terminal illness.

    Let our expert protection team advise you on a policy that meets your unique circumstances and goals.

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