Is your life covered?

With all the benefits and freedom that come from being a Contractor you also take complete responsibility for your own financial stability. We have bought you articles in the past advising on the income protection and critical illness cover available to replace the sick pay that permanent employees enjoy. But if even worse should happen then Contractors need to ensure that there is a cover in place to take care of your families financial needs whilst they deal with the grief.

As an alternative to the 'death in service benefit' that comes with permanent employment, Contractors can invest in life cover to protect loved ones and help replace the lost family income. There are a number of different options available for life cover which allow you to tailor the policy to meet your individual requirements and because our advisers search the whole of the market, we are confident that we can find a life cover policy to offer the right protection at a price you can afford.

Term Cover - to protect you for a specific time in your life

A low cost life insurance option that covers you for an agreed period in your life, term cover is perfect, for example, for those Contractors that want to be covered until the children leave for university or until the age of retirement. Once your chosen period of cover ends, your policy will lapse without value if a claim has not been made and it is this capped liability on the insurance company which makes this cover relatively inexpensive.

Competition in the insurance market has driven prices of term cover down over recent years so you might find it beneficial to review existing policies against current prices. The price of your cover is likely to be influenced by your age, gender, if you smoke etc but for many Contractors, term cover offers peace of mind at a very affordable price.

There are two types of term cover; 'level' which provides the same sum on death and 'decreasing term cover' where benefits lower over time.

Decreasing term cover can be used to protect your family from a liability to debts such as a mortgage, loans or credit cards if you die as it will pay off the debts and leave them free from the ongoing repayments.

Level term assurance pays out the same amount whenever death occurs during the term of the policy and is used, for example, to protect an interest only ISA mortgage (i.e. one where the debt to the lender does not reduce each month). It can also provide a lump sum for your family to place on deposit and they can then draw off the interest to provide an income although it is important to remember that this money could easily be eaten into which in turn would lower the income it provides.

A family income benefit plan - to compliment your term cover

If you are worried about the implications of your family drawing upon the lump sum and having to take a lower income as a result then another alternative is the family income benefit plan.

This cover will provide a set income upon your death during the term of the policy and will help with household expenses or to fund your children's education. It is worth bearing in mind that the policy will only pay out for each year that remains out of the original term that you chose to be protected for and as such the total benefit may be quite low if the you die towards the end of your policy. A level term policy will pay the fixed sum regardless of how far into the term your death occurs.

Whole of life - for complete peace of mind

Although a whole of life plan is more expensive than term cover, some Contractors prefer it because they know it will pay out at some point. Whereas term cover lapses without value once your term has ended, whole of life cover protects you until death at any age so you know that your investment will pay out, even if you are 90 years old.

If you take out a whole of life policy at a relatively early age then it can be very reasonably priced and with most policies an investment element will build up over time to help keep costs down as you get older. In some cases this investment element can be used to draw out a cash lump sum which is referred to as a 'cash if you die, cash if you don't die' policy. This is a major benefit of a whole of life insurance when compared with term assurance as these policies will not build up savings to be paid out should you no longer require the cover.

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