The Contractor's Financial Safety Audit
Speak to An ExpertCustomers love us! Don't take our word for it. Check out what some of them have to say...
The Contractor’s Financial Safety Audit: Are You Dangerously Exposed?
When you transition from a permanent employee to an independent contractor or limited company director, you gain freedom, flexibility, and often a higher income. However, you also lose the hidden safety nets provided by corporate HR departments. Statutory Sick Pay, death-in-service benefits, and group income protection vanish the moment you strike out on your own.
Without these safeguards, the financial risk falls entirely on your shoulders. If an unexpected illness prevents you from working, or if the worst happens, your family and business could face immediate financial hardship. This 5-minute diagnostic will help you identify critical gaps in your current setup.
The 5-Point Safety Check
Ask yourself the following questions to assess your exposure:
If your answer relies solely on draining your hard-earned savings, you are carrying unnecessary risk. Income Protection provides a regular, reliable income, usually 50% to 70% of your earnings, if you are too ill or injured to work. Directors may be able to receive up to 80% of their income, including dividends.
Many contractors assume their savings or property equity will be enough, but probate delays and market fluctuations can leave families stranded. Life Insurance ensures your loved ones receive a tax-free lump sum when they need it most, bypassing the delays of probate when written in trust.
If you operate as a limited company director, paying for personal life insurance out of your own pocket is highly inefficient. Relevant Life Insurance allows your company to pay the premiums as an allowable business expense, saving you corporation tax, income tax, and National Insurance contributions simultaneously.
Research from Legal & General shows that 59% of SMEs would cease trading within 12 months of losing a key person, yet only 12% of businesses have Key Person Insurance in place. Key Person Insurance injects cash into the business to cover lost revenue, recruit replacements, or settle outstanding debts.
If your business partner passes away, their shares typically pass to their estate and then to their family. Without Shareholder Protection, you could end up in business with an unwanted heir, or lack the funds to buy the shares back at a fair price.
Your Next Steps
If you answered “no” or felt uncertain about any of these questions, your financial foundation may have cracks. At Broadbench, we specialise in protecting contractors, freelancers, and limited company directors who don’t fit the standard employee mould.
You may also find it useful to read our Contractor Financial Glossary.
Case Studies
Speak to a Broadbench Specialist
Don’t wait until a crisis forces your hand.
Speak to a Broadbench expert today to build a protection plan that reflects how you earn, live, and support those who depend on you.
FAQs
What is the most important protection for a contractor?
If you rely entirely on your ability to work, Income Protection is generally considered the most vital cover. It replaces your income if you are unable to work due to illness or injury, ensuring you can continue to pay your mortgage and living expenses.
Read our Contractor Financial Glossary.
Can I get income protection as a contractor?
Yes. Income protection is available to contractors and freelancers, though the policy structure may differ from standard personal policies.
For contractors operating through a limited company, executive income protection can be arranged through the company and treated as a business expense, providing significant tax advantages. For sole traders and umbrella company workers, personal income protection is available based on your earnings history.
Can my limited company pay for my life insurance?
Yes. By setting up a Relevant Life Insurance policy, your limited company can pay the premiums as an allowable business expense. This is significantly more tax-efficient than paying for a personal policy out of your post-tax income.
How do lenders assess contractor income for mortgages?
Specialist lenders assess contractor income based on your day rate, typically multiplied by 46 or 48 weeks to produce an annualised income figure. This method often results in a significantly higher borrowing capacity than standard affordability assessments based on payslips. Broadbench works with lenders who use this approach, ensuring you are assessed fairly.
Find out more about Contractor Mortgages.
Does IR35 status affect my mortgage application?
IR35 status can affect how lenders assess your income, particularly if you have recently moved inside IR35 and your take-home pay has changed. Some lenders are more comfortable with inside-IR35 contractors than others.
Broadbench advisers understand the implications of IR35 for mortgage applications and can identify the most appropriate lenders for your situation.
What is relevant life insurance and can contractors use it?
Relevant life insurance is a death-in-service benefit arranged through a limited company. It provides a lump sum to your family if you die, paid through a discretionary trust. Because premiums are paid by the company, they are typically a deductible business expense, and the benefit is usually free of inheritance tax. This makes it significantly more tax-efficient than personal life insurance for contractors operating through a limited company.
Read our Contractor Financial Glossary.
Do I really need Key Person Insurance if I'm a sole director?
If your business has ongoing financial commitments, such as a commercial lease, business loans, or employees, Key Person Insurance can provide the funds needed to wind down the business in an orderly manner or pay off debts if you suffer a critical illness or pass away.
Read our Contractor Financial Glossary.
How much income protection can I arrange as a contractor?
Most income protection policies will cover up to 70% of your pre-tax earnings. For contractors, the definition of “earnings” and how they are assessed varies between insurers. Some policies assess earnings based on your contract rate, while others use your most recent tax return.
Broadbench advisers will identify the policy that provides the most appropriate level of cover for your specific income structure.
Ready to secure your financial foundation?
Fill out the form below to arrange a time to speak to a Broadbench adviser who specialises in Contractor and Freelancer protection.