Being a self-employed contractor has its benefits and drawbacks—one of them being the lack of benefits and insurance offerings from your employer. Life insurance is a crucial component of financial planning, providing security and peace of mind to individuals and their families. However, many people overlook life insurance and for self-employed contractors, it’s often not something that automatically comes with the job. Navigating the complexities of life insurance as a contractor can pose unique challenges. From fluctuating income to irregular work patterns, self-employed contractors in the UK have to be ready for these extra considerations when it comes to securing adequate life insurance coverage. So how can self-employed contractors effectively plan for their life insurance needs? The nature of self-employment Self-employment offers numerous benefits—from flexible work hours to autonomy over choosing what work you do. However, that flexibility also often comes with financial volatility. Unlike traditional employees who receive a steady salary and benefits, self-employed contractors often experience irregular income streams and have to invest in their own benefits packages. This can make it more difficult to budget for recurring expenses, and be able to afford rising life insurance premiums.Self-employed contractors have to navigate the individual insurance market to find suitable coverage for themselves—and cover it month to month. Challenges faced by self-employed contractors1. Unstable income One of the primary challenges for self-employed contractors is often the volatility of income. There is no set monthly paycheck if you’re working from gig to gig. Unlike salaried employees with predictable earnings, contractors might have months of feast or famine, and life insurance premiums aren’t typically seen as a necessity for survival, but rather a “nice to have”. So, for many, it’s a “perk” that often falls by the wayside. 2. Access to affordable coverageSelf-employed individuals can also struggle to find affordable life insurance options—especially if they’re not seen as “fit” to pay their premiums on a monthly basis due to unsteady income. Traditional insurers may view self-employment as a higher risk factor, resulting in higher premiums or limited coverage options. In addition to this, the underwriting process for self-employed applicants may be more stringent, requiring detailed financial documentation to make sure you’ll be making your payments on time. 3. Lack of employer supportUnlike employees of large corporations, most self-employed contractors do not have access to employer-sponsored benefits, such as Group Life Insurance plans.This means that contractors must proactively seek out individual life insurance policies, which can be time-consuming and overwhelming, especially if insurance is a foreign concept to them. Sometimes negotiation is possible to include stipends for such benefits, but a lot of the times, and especially in smaller contracts for small clients, these are costs the independent contractor has to cover themselves if they want consistent cover. How to plan for life insurance when you’re self-employed Despite the challenges, self-employed contractors can take proactive steps to address their life insurance needs effectively. Here are some strategies to consider:1. Work with an experienced advisorSeeking guidance from a knowledgeable insurance advisor who specialises in serving self-employed individuals can be a great place to start. They can help you learn more about the insurance industry, what types of cover would best suit you and what you can expect in the process of acquiring life insurance. 2. Consider “term life insurance”Term life insurance is often a cost-effective option for self-employed contractors. With term insurance, individuals pay premiums for a specified period (typically from 1 year to 30 years), and cover is provided during that time frame only. Outside of that, you don’t have cover. Term policies typically offer higher coverage amounts at lower premiums compared to permanent life insurance options.3. Optimise coverage amountsWhen determining the appropriate cover amount, self-employed contractors should consider their financial obligations, including outstanding debts, mortgage payments, and future living expenses. Additionally, factoring in potential future earnings and anticipated expenses can help ensure that the coverage amount adequately protects their loved ones.Keep up with inflation in your pay and rising premiums and re-assess regularly how much money you must set aside for life insurance and other expenses alike. 4. Maintain accurate financial recordsIn order to have smoother underwriting processes, it’s best to keep meticulous financial records as a self-employed person—that includes tax returns, profits, loss statements etc. Accurate documentation not only facilitates the underwriting process but also provides evidence of income stability, potentially leading to lower insurance premiums.5. Review and update cover and providers regularly Life insurance needs can evolve over time, particularly for self-employed individuals whose financial circumstances may change dramatically in short periods of time.It's essential to review life insurance coverage periodically and make adjustments as needed to reflect changes in income, expenses, or family dynamics. By regularly checking in, you can also make sure you’re getting the best provider and cover possible for the money you’re paying. The insurance industry is always changing—make sure you’re evolving with it. Check out YuLife's new approach to life insurance. 6. Factor in insurance expenses when setting your rateFreelancers have to do some extra financial planning when it comes to each project. Just as one would factor in the amount of taxes they have to pay as an additional cost to the business, add any insurance premium costs to the amount you’re charging a client. This can ensure that you are taking home the pay you need for other bills while making sure your life insurance premiums are already covered in your paycheck without having to think about it. Then, set up automatic payments and it’s almost like your employee is paying for it for you! The importance of life insurance for self-employed contractorsEspecially if a self-employed contractor has a family, life insurance is a vital safety net to consider. In the event of the contractor's death, life insurance provides financial support to cover outstanding debts, funeral expenses, and ongoing living costs. It can help replace any lost income, ensuring that the contractor's loved ones are not left financially vulnerable and have as much support as possible. Although, despite its emphasised importance, many self-employed individuals overlook life insurance planning because it’s not seen as a “necessity” or it’s simply out of their budget. However, with careful planning and guidance, life insurance doesn’t have to be unaffordable. There are solutions out there tailored to their unique needs—it’s simply about knowing how to plan around it and work with what you have. By prioritising life insurance planning as an integral part of their financial strategy, self-employed contractors can gain peace of mind knowing that their loved ones are financially secure, regardless of what the future holds.About YuLifeYuLife is working to reimagine the insurance industry by protecting lives, rewarding living and inspiring life. We’re on a mission to transform traditional insurance into a life-enhancing experience each employee will value and use daily. How does it work?Our award-winning app uses behavioural science and game mechanics to reward your people for living well while offering protection in case of crisis. And with our top-rated employee assistance programme, your team gets access to mental, financial and social support, virtual GPs, nutritionists, life coaches and more to help them live their best lives.Because we believe that your employees should benefit from their insurance from day one — and that wellbeing should be accessible every day, for everyone.Request a demo for your team today.