Life Insurance for Contractors
You are likely to have had the benefit of ‘death in service benefit’ of up to 4 times salary in your last permanent job. Many employees don’t ever realise the value of this unseen perk of salaried employment but now that you sought the greater potential rewards offered by contracting you have also left the security of a big company benefits package and may need to arrange your own protection for your partner, kids or other family members. You may also use your enhanced income as a contractor to buy your first, an additional or a larger property. Again this will need to be covered by life insurance so that no debt is left for your family should anything happen to you.
Use our ‘life cover decision aid’ to work out which type of policy is right for you and then fill in one of our Protection Finder. As IFAs we are able to trawl the entire market for this type of cover and once we have carried out our research we will email back with a recommendation as to competitive provider for your age group and requirements. Thankfully the insurers are engaged in a fiercely competitive battle to get your custom and we should be able help you get that safety net at a price you can afford. Why not also check that any existing cover that you have is still competitive. If you have had a policy arranged in the past 5 years then we can almost certainly reduce the costs now and if have ever taken cover through a bank or building society then we can often save you up to 40% of the premiums for identical cover.
There are 2 main types of life insurance – ‘term cover‘ and ‘whole of life‘.
A term policy will, as the name suggests, provide simple low cost protection for a given period after which time the policy will lapse without value. Rates can be very competitive and will be influenced by your age on taking out the cover, whether you smoke and whether you are male or female (guys are supposedly more likely to do stupid things in cars etc and are likely to be marginally more costly to insure).
With a whole of life plan you know that the insurer will be paying out at some time although this cover is likely to be more expensive. You will die at some stage and (as long as you have kept the policy going) the insurer will have to pay -even if you are 90 years old!!
As you will see from the finder there are various types of life cover with varying applications. Below are common uses of the various plans-
Uses of level term assurance
- Provide a lump sum for those close to you to place on deposit and draw off the interest to make up for your lost income. Its important to realise that this capital could be easily eaten into so reducing the income generated (see family income benefit for alternative/mix and match this with)
- Cover your life for the time that your kids will be dependent on you (say to age 18 or perhaps 21 if you hope they will go to University).
- Protect an interest only loan such as an ISA mortgage so that you leave no debts for your family to pay.
Uses of a decreasing term assurance
To cover a repayment (capital and interest) mortgage.
Uses of a family income benefit plan
To provide a set income over a term to help fund household bills/education. Remember that the total benefit that this plan pays may be relatively small if death occurs in ,say the last year of a 20 year policy but could be very significant if death occurs early in the term. A level policy will pay the sum if death occurs in the first month or the last month of the same 20 year term.
Uses of a whole of life policy
Useful if there is a need to ensure that cover never comes to an end. Can be reasonably priced if taken out early and is often backed by an investment element that builds up over time to help keep costs under control later in life. If this investment linked plan is encashed at an earlier stage than when the fund has been depleted to help meet premiums then a cash sum can be drawn out (sometimes referred to as cash if you die, cash if you don’t die policy) whereas the plans mentioned above very rarely feature any investment element and will not build up a savings element to be paid out on stopping the policy.
Using our Protection Finder we will provide the cover you need as a contractor.
You could consider taking ‘waiver of premium’ as a low cost option to protect your payments against you being unable to work through sickness after 6 months. The insurance company then maintains the premiums for you so that your dependents/loans remain protected.
Certain life policies have an investment element. It is important to understand that these investments are longer term in nature and that the value of investments and income from them can fall as well as rise. Past performance is also no guarantee of future performance.
