Contractor Life Insurance

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In our experience, taking out personal protection as a director of a limited company comes with a lot to consider. From finding the best provider to understanding the tax implications, you’ll probably have a lot of questions.

Our guide to Contractor Life Insurance, also known as Relevant Life Insurance, will explain all. If you do already know what cover you need you can compare instant online quotes from the best insurance providers in the UK using our handy quote tool.

What Is Contractor Life Insurance?

Contractor Life insurance is similar to personal life insurance, in that it will pay out a cash lump sum in the event that you pass away or become terminally ill with a diagnosis of 12 months or less.  Key points to note about this particular protection include:

  • Benefit amount gets paid to your loved ones so they can cope financially through a difficult time
  • You can cover up to 25 x your salary with some providers
  • On death, the payout is distributed into a special trust created at the outset of the policy (something Drewberry helps facilitate), avoiding any inheritance tax implications on the benefit.

Why Is Contractor Life Insurance Important?

Life insurance is crucial if you’re a contractor as it often replaces employee benefits such as Death in Service cover, that may have been lost as a result of starting up your own limited company. It can also help cover any outstanding business debts, ensuring that the financial burden does not fall on your family or business partners should the worst happen.

How Does Contractor Life Insurance Work?

As we’ve already mentioned, Contractor Life Insurance (also known as Relevant Life Insurance), is very similar to personal life cover.

On the surface, they both offer the same thing: a cash lump sum payout to your loved ones if you die during the policy term. However, the difference between the two is highlighted when it comes to who pays for the policy.

Personal Life Insurance would be paid for by yourself, from your own bank account. Contractor Life Insurance on the other-hand would be paid for by your company, and would be classed as a legitimate business expense by the HMRC. This means that the premiums paid aren’t subject to National Insurance or Income Tax.

What Does It Cover?

When you take out a Contractor Life Insurance policy as a director, it covers you for:

  • Death
    A full pay out if you die during the policy term
  • Terminal Illness
    Most providers will pay out early if you develop a terminal illness. This is defined as an incurable condition where your life expectancy is 12 months or less.

It’s important to note that you cannot include Critical Illness Insurance with a Contractors Life Insurance policy. If you’re looking for Critical Illness cover, you can take out a personal policy, or you might consider Director’s Income Protection.

What Type Of Cover Does It Offer?

Another important difference between personal and contractors protection is the type of cover you can take out. With Contractors Life Insurance, you’ll only ever tend to take out Level Life Insurance. This means the benefit will remain the same throughout the entire policy term.

You have more cover options with a Personal Life Insurance policy, such as:

However, with a personal policy, you won’t be able to enjoy the tax benefits on offer with a Contractor Life Insurance plan. You’ll also pay for the cover out of your own pocket.

Samantha Haffenden-Angear, Independent Protection Expert at Drewberry

If you’re a director of your own company, there’s nothing stopping you from having a Relevant Life Insurance policy through your business as well as personal cover.

You can have multiple policies and still enjoy significant savings through tax relief.

Samantha Haffenden-Angear
Independent Protection Expert

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Who Can Get Contractors Life Insurance?

Contractors Life Insurance is aimed at people who are contracted to work through their own business. But the eligibility for Relevant Life policies is not limited only to contractors.

It can be suitable for:

  • Directors of a Limited Company
  • Management consultants
  • High-earning employees of small businesses
  • Employees of small businesses in general.

The key thing with Contractor Life Insurance is that there must be a company structure to own and pay for the policy. As such, if you’re a self-employed sole trader or an equity partner (shareholder), you won’t be eligible for a policy.

Contractor Life policies are best suited for contractors who don’t have access to a Group Life Insurance scheme. With most providers, you need a group of at least 3 people to qualify. So, if your business has too few employees, or the director is the only member of staff, Contractor Life policies are a great option.

How Much Life Insurance Can You Get As A Contractor?

The amount of cover you can have will be subject to a few different factors. For example, you’ll need to consider your age, earnings, and budget when you apply for insurance.

Depending on the insurer you apply to, your cover could be capped at a certain multiple of your earnings. The upper limit could be as much as 25 or 30 times your total remuneration, which includes:

  • Salary
  • Bonuses
  • Dividends
  • Commissions
  • Overtime pay.

For example, if your total remuneration came to £100,000 per year, you could potentially apply for up to £3,000,000 of Contractors Life Insurance.

In most cases, you won’t need as much as the maximum amount of cover. So, it’s important to think about a reasonable budget for your company to pay for the policy.

How Much Insurance Do You Need?

Before you decide to apply for a policy, it’s important to decide how much cover you actually need.

If a claim occurs, the lump sum benefit is paid to the beneficiary/ies of your choosing. So, it helps to think about what they might use those funds for. For example:

  • Paying off a repayment mortgage
  • Repaying any other outstanding debts
  • To cover funeral costs
  • Leaving an inheritance for your loved ones.

As you’d expect, taking out a large benefit will cost more. The reverse is also true: taking out only the amount of cover you need will result in lower premiums.

Do I Need Life Insurance As A Contractor?

No one enjoys thinking about what would happen if they weren’t around anymore, but it’s something we all need to consider. If you own your business or have financial dependents, it’s important to make provisions in case of a tragic event. For example:

  • What would happen to your loved ones if you suddenly passed away?
  • Could they keep up with the mortgage or rent payments without your income?
  • How would they meet everyday expenses, such as bills, groceries or even school fees?
  • What level of inheritance tax might they need to pay on your estate?

If it’s likely that your family would struggle in your absence, it’s important to put protection in place. Doing so gives both you and your loved ones a valuable financial safety net.

Having Contractors Life Insurance means your loved ones will receive a tax-free lump sum if you pass away. As a result, they can repay any outstanding debts and manage their living expenses without your income.

What’s The Risk Of Passing Away?

Life expectancy from birth is consistently going up. And with steady medical advancements, it’s easy to avoid thinking about our death. But, it’s something we all have to consider and plan for. Life Insurance is designed to provide long-term protection, but it’s never too early to put a plan in place.

As we grow older, the risk that we’ll pass away steadily goes up. We’ve put together the below table using mortality data from the Office of National Statistics (ONS). It shows the risks of a healthy man passing away in the next 15 years at various ages.




1 in 47

1 in 23

1 in 10

Life Insurance provides very affordable cover when compared to other types of protection on the market. For instance, you’ll pay significantly more for an Income Protection policy or Critical Illness Cover.

Applying for insurance at a younger age makes it even more affordable. This is because the risks to our health and mortality are much smaller. Waiting until you’re older or have developed a health condition will often result in higher premiums.

Using the same ONS data from the table above, we’ve created our own Life Expectancy Calculator. The tool below can help you understand the risk of passing away, and give you an indication of how long you might want cover in place for.

How Much Does Life Insurance For Contractors Cost?

The premiums you’ll pay for Life Insurance will depend on several factors. From the provider you choose to your medical history, many aspects will affect the end cost.

It’s important to note that a Contractor Life Insurance policy is cheaper than a personal protection policy. This is due to the tax relief you receive when your company pays the premiums. As such, the core price of the cover will be very similar.

To show how your options can impact the cost, we’ve provided some examples below.


Each Life Insurance provider is different, with their own particular attitude towards risk. What one might deem as an increased risk, another might not.

To show how your chosen insurer can impact the premiums, we’ve gained quotes based on the following criteria:

  • A healthy 35-year-old company director
  • Taking out a £500,000 Level Term Life Insurance policy
  • A 20 year policy term.

Insurance Providers

Legal & General Life Insurance Logo Aviva Life Insurance Logo



Quotes correct as of Feb 2024

Amount Of Cover

The higher the sum you want to insure your life for, the more your policy premiums will cost. Below, we have another example using our 35-year-old company director.

This time, the quotes show two different benefit amounts, both with a 20 year term. These figures are from Legal & General.

Benefit Amount





Quotes correct as of Feb 2024

Policy Term

The length of time you want the policy in place for will also be reflected in your premiums. For instance, having the cover in place for longer means a greater chance of passing away during the policy term.

It’s important to think about how long you need the cover for. For many people, this will be until they’re of retirement age, but this can vary from person to person.

Using our same 35-year-old from before, we’ve gained quotes from Aviva showing two different policy terms. The amount of cover is still £500,000.

Policy Term

10 Years

20 Years



Quotes correct as of Feb 2024


Similarly to the policy term, the older we are during the life of the policy, the greater the risk of a claim. All insurance providers will charge more to cover an older person compared to a younger one.

The below quotes are from Liverpool Victoria, showing the cost of cover at three different ages. These figures are based on taking out £500,000 of cover for a 20 year term.

Impact Of Age On Premiums









Quotes correct as of Feb 2024


Your occupation is another risk factor which insurance providers will consider. If you have a high-risk job, it’s likely you’ll be charged more for your premiums.

For example, a role involving heavy manual work or lots of travel will naturally come with a greater risk of accident, injury or even death. Meanwhile, an office-based role will typically be a lower risk environment. These factors impact the risk that the provider will have to pay out an expensive claim, and this will be reflected in the cost of the policy.

Medical History

When you apply for cover, your insurance provider will ask you to complete a health declaration. This is another way insurers will assess the risk of providing you with cover.

The health declaration will include your height and weight, any upcoming procedures you’ll have, and any pre-existing conditions. Sometimes, they’ll need more information to make a decision. This could be in the form of a GP report, a nurse’s screening, or a full medical assessment with a doctor.

It’s important to be honest on your declaration, as leaving out crucial information could invalidate a claim later on. If insurance underwriters consider you a higher risk, you might pay slightly more in life insurance premiums.

Smoker Status

Another important factor that impacts the cost you’ll pay is whether or not you smoke. Smoking has been proven to increase the risk and severity of many health conditions.

There are some insurance providers who are smoking-neutral. In other words, they don’t charge more for smokers. However, in most cases you’ll pay significantly more for your premiums if you smoke.

The below figures are from Vitality to show the difference between smoking and non-smoking rates. The quotes are for our same 35-year-old taking out £500,000 of cover for 20 years.

Smoking VS Non Smoking





☝️ 89% increase in premiums due to smoking

Quotes correct as of Feb 2024

Hazardous Hobbies

Lastly, providers need to know if you partake in any dangerous or extreme hobbies. These could also pose a risk to your health or mortality. Such activities include:

  • Diving
  • Freestyle rock climbing
  • Motorsports
  • Bungee jumping
  • Parachuting and gliding
  • Flying a plane or helicopter.

If you do engage in high risk activities outside of work, you may be rated as a slightly higher risk. For this reason, you could pay more in policy premiums.

Most online quote tools only show an initial premium without considering any additional risks. For people with riskier hobbies, roles, or health, the initial quotes may not be accurate. If you’re concerned about your risk factors, it’s always best to speak with a financial adviser.

How Does HMRC Treat Life Insurance For Contractors?

There are a few reasons why Relevant Life Insurance has a reputation for being highly tax efficient life cover. It offers significant savings over personal Life Insurance, because the premiums are paid for by your limited company.

Your own tax liabilities will vary based on a significant number of factors, including your personal circumstances. As such, we recommend that contractors seek advice from an accountant on the specific taxation issues relating to their business.

In general terms, Relevant Life Insurance is:

  • Paid for by the limited company and seen by HMRC as an allowable business expense
  • Excluded from both employee and employer National Insurance calculations
  • Not classed as a taxable benefit in kind
  • Able to offer a tax-free payout that has never formed part of your lifetime pension allowance, unlike most group schemes.

You need to ensure the primary purpose of your policy is not seen as tax evasion. This is something you’d need to discuss with your accountant. Suffice to say, in the vast majority of cases Relevant Life Insurance is completely HMRC-approved.

As of the Spring budget 2023, the UK chancellor announced the abolition of the pension lifetime allowance (LTA). This came into effect from 6 April 2023.

It’s important to note however, the Labour party has announced that if they were to be elected, the allowance may be reintroduced in the future. If this occurs, we will update our records to reflect any changes. The information on this page is based on the LTA pre 6 April 2023.

How Much Can You Save With Contractor Life Insurance?

In the table below, we’ve provided an example of how you can save tax with Relevant Life Insurance.

Personal Life Cover
Relevant Life Cover
Cost to Individual
Monthly Premium
Employee NI Contribution
Income Tax
Cost to Business
Employer NI Contributions
Gross Cost
Corporation Tax
Total Cost


By opting for Contractors Life Insurance (Relevant Life) over personal Life Cover you would make savings of 49.03%. That’s a saving of £77.93 per month or £935.13 per year!

How Do The Tax Savings Work?

Paying for personal Life Insurance means the premiums are paid out of your post-tax monthly income. So, while the premium cost is £100 per month, you’ve already paid Income Tax on those earnings.

Both you and your company have also paid National Insurance Contributions on the salary you’ve earned. As a result, the overall cost towards the policy comes to £158.93, even with the 20% corporation tax relief.

When we compare this to taking out Life Insurance for contractors through the company, the savings quickly add up. As an individual, the cover costs you nothing at all. And neither you nor your company makes national insurance payments on the funds used to pay for the policy. Not only that, but your company can still claim tax relief, because the policy is a tax deductible business expense.

Is A Policy Payout Subject To Inheritance Tax?

Whilst we know that the policy premiums are a business expense, it’s also important to understand the tax implications of a potential claim payout.

In most cases, a Life Insurance claim isn’t subject to inheritance tax. This is because Relevant Life Insurance policies must be written into a trust at the outset of the policy. At Drewberry™, this is something we help guide you through. If your Contractor Life Insurance isn’t put into a trust, it loses some of its tax efficiency.

Using a Relevant Life Trust means that any funds paid from the policy will be owned and handled by the trustees. This means the payout doesn’t form part of your estate. Trustees have very few discretionary powers and are bound to pay the benefit to your chosen beneficiary/ies.

A trust also ensures:

  • The payout is handled quickly
  • Your loved ones will not have to wait a long time for probate
  • A reduced chance a claim being contested, as it’s a legally binding document.

As we mentioned above, it’s important that the main purpose of your policy is not seen as tax evasion. Otherwise, these savings are HMRC-approved. You can use our handy tool below to calculate your potential tax savings.

rauri taylor, independent protection expert at drewberry

Trusts are a legally binding document and can be daunting to complete. Nowadays, many insurers have online trusts which are quick and easy to set up.

In the event that the right provider for you doesn’t have an online trust, your advisor can guide you through the process smoothly.

Rauri Taylor
Independent Protection Expert

Relevant Life Insurance Calculator

Calculate the tax savings you can make by taking out a company paid Relevant Life Insurance policy instead of a personal Life Insurance policy.

  • £

Compare Best UK Contractor Life Insurance Companies

If you’re ready to take out your Contractor Life Insurance company, you’ll want to find the best provider for you. Here at Drewberry, we’re a whole-of-market consultancy. As such, we’ll obtain quotes from all the top UK providers when we carry out a market review.

For example, our expert advisors will source quotes from:

  • Aegon
  • AIG
  • Aviva
  • Guardian
  • Legal & General
  • Liverpool Victoria
  • Royal London
  • Scottish Widows
  • Vitality
  • Zurich.

Each insurer has different values and approaches to risk. What one might see as high risk, another might not. As a result, your policy premiums could vary widely depending on your industry, role and background.

It’s also important to remember that there’s much more to consider than just the cost. For example, insurer’s claim payout rates, customer service reputation, and additional benefits will all impact your final choice.

Our experts know the market like the back of their hands, and can find the best Life Insurance specifically for you.

Additional Benefits

When choosing the right provider, make sure you look at the additional features and services that come with your policy. While your policy exists to serve its primary function, most insurers offer some extra benefits for you to enjoy.

Some fairly common additional features include:

  • 24 / 7 virtual GP service
  • Second medical opinion service
  • Fracture cover
  • Physiotherapy sessions
  • Mental health support
  • Counselling and stress helplines
  • Health and wellbeing incentives.

It’s useful to consider which of these services might benefit you. By choosing the one that best suits your needs, you ensure that you’re getting the most out of your cover.

Common Questions About Contractor Life Insurance

  • What's The Difference Between Keyman Insurance And Contractor Life Insurance?

    There are some key similarities between Keyman Insurance and Contractor Life Insurance. For instance, they both provide a lump sum payout if a key individual within the business dies. However, the purpose of the two policies is very different.

    Perhaps the biggest difference between Keyman Insurance and Relevant Life Insurance is the beneficiary of the policy. Keyman Insurance benefits the business and provides business continuity to your company. In order to remain tax efficient, Relevant Life Insurance can only benefit individuals or charities.

  • Are Relevant Life Insurance Policies A P11D Benefit-in-Kind?

    No, Relevant Life Insurance policies are not considered a P11D or Benefit-in-Kind for you as a contractor. As a result, there’s no additional tax for you to pay as the insured person on the policy.

  • What's The Difference Between A Group Policy And A Contractor Life Insurance Policy?

    There are some important differences between a Group Life Insurance scheme and a Relevant Life Insurance plan. The main differences are outlined below:

    • Scheme Size: Generally a group of 2 to 3 people are needed in order to qualify for a group scheme. Meanwhile, Contractor Life Insurance covers only one individual.
    • Purpose: A group policy is often seen as an employee benefit, whereas a Relevant Life policy is a way for directors to take out life protection.
    • Budget: Companies tend to have a specific budget for employee benefits, but the budget for a Relevant Life plan will generally be much smaller.
    • Rating: While Relevant Life policies are rated on your personal factors, group schemes are only rated on age and industry. This means the cost structure is significantly different.
    • Level of Cover: With Relevant Life insurance, you can take out up to 30 times your total remuneration. However with group schemes, the maximum benefit amount is anything up to 10 times each employee’s earnings.

    There’s a lot more to it, but these are the core differences. Ultimately, Relevant life plans are ideal for replacing employee benefits that you may not have access to since starting your own limited company.

  • Can My Limited Company Pay For My Life Insurance?

    Yes, with Contractors Life Insurance the premiums are paid for by your limited company. Doing so can offer significant savings on tax and is HMRC-approved.

    The premiums are eligible for National Insurance and corporation tax relief. Meanwhile, thanks to a specially-drafted trust, any payout is also tax-free if you pass away during the term of the policy.

  • Am I Eligible If I'm Working For An Umbrella Company?

    Some contractors work for an umbrella company, which acts as an employer for those on fixed-term contracts. Such companies pay invoices, make PAYE deductions and may offset expenses.

    In this case, if you haven’t formed a limited company, we recommend taking out personal Life Insurance. Typically, you won’t be eligible for the tax benefits of Contractor Life Cover.

  • What Restrictions Apply To Contractor Life Insurance?

    There are a few restrictions to Contractor Life Cover that you need to be aware of:

    • HMRC hasn’t approved the tax status of Contractor Life Insurance with added Critical Illness Cover. This means the tax savings only extend to life assurance
    • It’s not suitable for sole traders or equity partners (shareholders)
    • The main purpose of the policy must not be to avoid tax, such as income tax or inheritance tax
    • The employee can only be covered up to the age of 75 and it can only pay out a lump sum if the employee dies before this age
    • There must be no surrender value (a payout from the insurer if a policy is cancelled before it matures) on the policy; i.e., it can only be a term insurance policy
    • The beneficiaries may only be individuals or charities.

    If you need other forms of cover, such as Critical Illness cover, you may need to take out personal insurance. Or, if you’re interested in taking out Income Protection, you could consider a Contractor’s Income Protection policy.

Get Contractor Life Insurance Quotes & Expert Advice

We at Drewberry understand contractors and the way you work. Over the years we’ve helped thousands of people find the best kind of protection for them, day in, day out.

We’re also a fully independent insurance adviser and are not tied to any one insurer. This means we can search the entire UK market to find you the best deal. Whether you need Life Insurance, Sick Pay, or Business Protection, we’ve got you covered.

Pop us a call on 02084327333 or email, and speak to one of our friendly experts today.

Why Speak to Us?

We started Drewberry™ because we were tired of being treated like a number.

We all deserve a first class service when it comes to issues as important as protecting our health and our finances. Below are just a few reasons why it makes sense to talk to us.

Tom Conner Director at Drewberry

As a contractor there are lots of things to consider when it comes to your financial protection and doing it in the most tax efficient manner.

For help please don’t hesitate to pop us a call on 02084327333 or email

Tom Conner
Director at Drewberry

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