Life insurance for the self-employed: protecting income without an employer
- Employer death-in-service
- None when self-employed [2]
- Bereavement Support Payment
- Up to £3,500 lump sum [3]
- Protection claims paid 2025
- 97.9% [7]
- IHT threshold
- £325,000 [5]
What you need to know as a self-employed applicant
- Recognise the protection employees get automatically and you do not.
- Size cover around sustainable income rather than a single strong year.
- Separate household needs from business debts and guarantees.
- Understand what insurers may ask about your earnings and work.
- Use trusts so the money reaches your family quickly.
What you miss without an employer
Employees often have a safety net they never think about. MoneyHelper explains that many employers provide death-in-service benefit, typically a lump sum worth a multiple of salary, paid if the employee dies while employed. [2] When you work for yourself, that benefit does not exist unless you create it. Sole traders, partners, freelancers, contractors and many small company directors start from zero.
The state offers limited support. GOV.UK explains that Bereavement Support Payment may be paid to a surviving spouse or civil partner under State Pension age if the person who died paid National Insurance contributions or died because of an accident at work. The higher rate is a £3,500 first payment followed by up to 18 monthly payments of £350 where the survivor is entitled to Child Benefit; the lower rate is £2,500 followed by up to 18 payments of £100. [3] Unmarried partners are not eligible. This support is valuable but temporary, and it is not designed to replace an income or clear a mortgage.
That makes term life insurance a more central decision for self-employed people than for many employees. MoneyHelper’s guide to life insurance explains the main types of cover and how they work. [1] Our guide to what term life insurance is covers the basics if you are starting from scratch.
| Benefit | Typical employee position | Typical self-employed position |
|---|---|---|
| Death-in-service lump sum | Often a multiple of salary | None unless arranged privately |
| Workplace pension death benefits | Often in place | Depends on your own pension |
| Sick pay | Statutory Sick Pay at minimum | No Statutory Sick Pay |
| Bereavement Support Payment | May apply to spouse or civil partner | May apply to spouse or civil partner |
| Private term life insurance | Optional top-up | Often the main protection |
Sizing cover on variable income
The standard approach to sizing life cover starts with the income the family would lose. For employees, that is a salary figure. For self-employed people, income can rise and fall from year to year, and the figure on a tax return may differ from the money the household actually lives on. Our needs guide walks through a household calculation; the self-employed twist is choosing the right income figure to feed into it.
A sensible starting point is an average of the last two or three years’ net profit, or the regular amount you draw to live on, rather than your best year. Sizing cover to a peak year can make the premium unnecessarily high; sizing it to a weak year can leave the family short. Self Assessment returns, which GOV.UK explains most self-employed people must file, [4] give you a reliable record to work from and may also be requested by an insurer for larger amounts of cover.
Then consider the costs your household faces that an employee’s might not. If the business ends on your death, the family may lose both your income and any income a partner earned from working in it. There may be tax bills due, equipment finance or a lease. Some of these belong to the business rather than the household, and it is worth separating them clearly, as the next section explains.
Household cover and business cover
Personal term life insurance protects the people who depend on you: a partner, children, a mortgage. Business protection, such as key person cover or shareholder protection, protects a business and the people who own it. They solve different problems and are often arranged separately. Mixing them can lead to a payout going to the wrong place, or being taxed differently from what you expected.
Many self-employed people have personally guaranteed a business loan, overdraft or lease. If you die, a guarantee may fall on your estate, which could reduce what your family receives. It can be sensible to include personally guaranteed business debts in your personal cover calculation, or to protect them with a separate policy. Check the terms of any guarantee you have signed so you know what would happen.
Limited company directors may also come across a “relevant life policy”, a type of individual death-in-service cover that a company can pay for on behalf of a director or employee. HMRC sets out the tax conditions that apply to such arrangements in its guidance on trusts, [6] and the details should be checked with an adviser or accountant before relying on them. For sole traders and partners, personal term cover paid from your own income is the usual route.
| Need | Cover often considered | Who it protects |
|---|---|---|
| Replace income for the family | Personal level term cover | Partner and children |
| Clear the mortgage | Personal decreasing or level term | Household |
| Personally guaranteed business debt | Personal cover sized to include it, or separate policy | Your estate and family |
| Loss of a key person | Key person cover | The business |
| Buying out a co-owner’s shares | Shareholder or partnership protection | Surviving owners and the family |
What insurers may ask
Applying as a self-employed person is similar to applying as an employee. You answer questions about your age, health, lifestyle and nicotine use, as explained in our guide to medical questions and underwriting. You will also be asked about your occupation, because some types of work carry more risk. Describe what you actually do day to day, not only your job title: a builder who manages projects from an office and one who works at height may be treated differently.
For higher amounts of cover, an insurer may ask for evidence that the sum assured is reasonable compared with your earnings, such as tax calculations or accounts. This is normal financial underwriting, not a sign of suspicion. Having recent Self Assessment records ready makes the process smoother.
Accuracy matters as much for your work as for your health. Under the Consumer Insurance (Disclosure and Representations) Act 2012, you must take reasonable care not to misrepresent when answering the insurer’s questions. [8] If your work changes significantly after the policy starts, check whether the policy asks you to tell the insurer; many term policies do not, but it is worth confirming.
Getting the money to the right people
If a policy is not written in trust, the payout generally forms part of your estate. That can mean waiting for probate before your family receives anything, which is a particular problem when your income has stopped and business affairs also need to be wound up. GOV.UK explains that Inheritance Tax is usually charged on estates above the £325,000 threshold, with exemptions such as transfers to a spouse or civil partner. [5] A business, a home and a life insurance payout together can take an estate above that threshold.
Writing the policy in trust allows the payout to go directly to the beneficiaries you choose, usually without waiting for probate and often outside your estate for Inheritance Tax. HMRC’s guidance explains how different trusts are treated. [6] Our guide to life insurance in trust explains how trusts work and what to consider. If you are unmarried, a trust and a will matter even more, because a cohabiting partner has no automatic right to inherit.
Arranging your own cover as a self-employed person
What works well
- The policy is yours and stays with you whatever happens to the business.
- You choose the amount, term and beneficiaries.
- A trust can deliver the money quickly to your family.
What to watch
- No employer contribution; you pay the premium yourself.
- Variable income makes sizing harder than a salary.
- Business debts and guarantees need separate thought.
A sole trader with variable earnings
Fictional applicant: Aisha, 38, a self-employed architect. Net profit over three years: £52,000, £38,000 and £61,000. Partner earns £30,000; two children aged 4 and 7; £210,000 repayment mortgage with 22 years left; £25,000 personally guaranteed business loan. No premiums are shown because real prices depend on underwriting.
- Income figure used
- Three-year average net profit, about £50,000
- Mortgage layer
- Decreasing cover, £210,000 over 22 years
- Household layer
- Level cover sized to replace part of her income until the youngest is 18
- Business guarantee
- £25,000 added to the level layer so it does not fall on the family
- Trust
- Both policies written in trust for her partner and children
Using an average rather than her best year kept the premium proportionate while protecting the household, the mortgage and the guarantee. Aisha plans to review the cover when her accounts or borrowing change.
Practical steps for the self-employed
List what you do not have
No death-in-service, no sick pay, limited state support.
Choose a sustainable income figure
Average two or three years of net profit or regular drawings.
Separate household and business
Personal cover for the family; business cover for the business.
Check personal guarantees
Decide whether to include them in personal cover.
Have your records ready
Recent tax calculations help with larger sums assured.
Write the policy in trust
Help the money reach your family without waiting for probate.
The gap I see most often is that there is no employer death-in-service benefit to fall back on. Self-employed clients are often underinsured without realising it, so we start by looking at what the family would actually need if the income stopped.
Common questions
Can self-employed people get term life insurance?
Yes. Term life insurance is an individual policy, so it is available to sole traders, freelancers, contractors, partners and company directors on the same basis as employees. The application asks about your age, health, lifestyle and occupation, and for larger amounts of cover an insurer may ask for evidence of earnings, such as recent tax calculations or accounts. The main difference is that self-employed people have no employer death-in-service benefit, so private cover is often their main protection rather than a top-up. Describe your work accurately, because the day-to-day nature of your job can affect the terms offered.
How much life cover do I need if my income varies?
Start with a sustainable income figure rather than your best year. An average of the last two or three years’ net profit, or the regular amount you draw to live on, is a practical basis. Then add the mortgage balance and other debts, the costs of raising children to independence, and any personally guaranteed business debts you want to protect, and subtract savings and other cover. Our needs guide walks through the calculation step by step. Sizing cover to a peak year can make premiums unnecessarily high, while sizing it to a weak year can leave your family short, so the average is usually the steadier choice.
What state support would my family get if I died?
Support is limited and temporary. GOV.UK explains that Bereavement Support Payment may be paid to a surviving spouse or civil partner under State Pension age if the person who died paid National Insurance contributions. The higher rate is a first payment of £3,500 and up to 18 monthly payments of £350 where the survivor is entitled to Child Benefit; the lower rate is £2,500 and up to 18 payments of £100. Unmarried partners are not eligible. Other benefits may apply depending on circumstances. This help is designed to ease the first months, not to replace an income or clear a mortgage, which is why private cover matters.
Should I include business debts in my personal life cover?
It depends on whether they would fall on your family. If you have personally guaranteed a business loan, overdraft or lease, the guarantee may become a claim against your estate after your death, reducing what your family receives. Including that amount in your personal cover, or arranging a separate policy for it, can prevent that. Business debts that are not personally guaranteed usually stay with the business. Key person cover and shareholder protection are designed for business needs rather than household needs, and are typically arranged separately. Check the terms of any guarantee you have signed so you know exactly what would happen.
What is a relevant life policy?
A relevant life policy is a type of individual death-in-service cover that a limited company can pay for on behalf of a director or employee. It pays a lump sum to the person’s family if they die while employed by the company, and it is written in trust. It can be tax-efficient when the conditions set out by HMRC are met, but those conditions are specific, and the arrangement is not available to sole traders or partnerships because they are not employed by a company. If you run a limited company, check the details with an adviser or accountant before relying on this route instead of personal cover.
Why should a self-employed person write life insurance in trust?
Because it helps the money arrive when it is needed. Without a trust, a payout generally forms part of your estate, which can mean waiting for probate while your family has lost your income and may also be dealing with winding up the business. A policy written in trust can usually pay directly to the beneficiaries you choose without waiting for probate, and is often outside your estate for Inheritance Tax. GOV.UK explains that Inheritance Tax is usually charged above the £325,000 threshold. For unmarried couples, a trust and a will are especially important because a cohabiting partner has no automatic inheritance rights.
Related guides
Sources
- MoneyHelper — What is life insurance? (2026-09-28)
- MoneyHelper — Life insurance through work (2026-09-28)
- GOV.UK — Bereavement Support Payment (2026-09-28)
- GOV.UK — Self Assessment tax returns (2026-09-28)
- GOV.UK — How Inheritance Tax works: thresholds, rules and allowances (2026-09-28)
- HM Revenue & Customs — Trusts and Inheritance Tax (2010-11-08)
- Association of British Insurers — Protection insurers pay out £7.84 billion in claims in 2025 (2026-06-29)
- legislation.gov.uk — Consumer Insurance (Disclosure and Representations) Act 2012 (2012-03-08)