Life Insurance Needs Calculator
Work out how much life cover you need based on income and debts, and compare paying premiums personally versus through a relevant life policy via your Ltd.
Default of 10x annual income is a common UK financial-planning rule of thumb (industry guidance typically ranges 10-15x); treat it as a starting assumption the user should adjust for their own debts, dependants and existing cover, not a fixed rule. Self-employed contractors and single-director limited companies almost never have an employer 'death in service' benefit unless they specifically arrange a 'relevant life policy' through their own company (a tax-efficient alternative available to Ltd-company contractors but not sole traders). State support on death is limited to the one-off, means-tested Bereavement Support Payment (up to £3,500 lump sum plus up to 18 monthly payments of £350, or £100 without children) — far below most households' income-replacement need.
How much life cover a contractor actually needs
Self-employed contractors and single-director limited companies almost never have an employer 'death in service' benefit, unlike most permanent employees — unless a Ltd-company contractor specifically arranges a 'relevant life policy' through their own company, a tax-efficient option that isn't available to sole traders. State support on death is limited to the one-off, means-tested Bereavement Support Payment: up to a £3,500 lump sum plus up to 18 monthly payments of £350 (or £100 a month without children) — far short of most households' actual income-replacement need.
Working out how much cover you need
- A common industry starting point is 10 to 15 times annual income, with this calculator defaulting to 10x as a starting assumption you should adjust for your own debts, dependants and existing cover — treat it as a starting point, not a fixed rule
- Outstanding debts, particularly your mortgage balance, are typically added on top of the income-replacement figure rather than assumed to be covered by it
- If you're a Ltd-company contractor, compare paying premiums personally (from taxed income) against a relevant life policy paid by your company, which is usually deductible for corporation tax and isn't treated as a taxable benefit in kind
- Remember that state support on death — the Bereavement Support Payment, up to a £3,500 lump sum plus up to 18 monthly payments of £350, or £100 without children — is modest and means-tested, so it shouldn't be relied on as a substitute for personal cover
