Does a contractor with no dependents need life cover?

Some financial advisers suggest that, unless a person has a long term partner and/or children, life cover probably isn't necessary, and attempts to arrange life cover for these people might be wrong.

Are they right? I sometimes wonder if they have thought it through. Does someone with no dependents need life cover? You see, I'm not sure if this is the right question. Nor am I sure it is a fair or purposeful one.

What happened to the (very sound - I did it myself) reasoning that says 'Well, I'm going to need it at some point soon when I settle down, so why not buy some now when it's cheaper than ever before and, more importantly, I'm young and healthy?'

The cost of life cover rises with age, as do the chances of not being quite as healthy as you were the year before. Taking a relatively common condition as just one example, diabetes could quickly double or even treble the premium for life cover, and if we believe the stats there are at least two million diabetics walking around in Britain not knowing they have it.

Is delaying the purchase of something you know you will need in the future always automatically a wise choice? It's a dividing issue. I've asked a few of our contractor clients and, so far, 12 are with me and eight are not. What does this tell us? It tells me it is probably impossible for any one person, adviser or regulator to determine exactly how much life cover another person should have, or when they should buy it.

What about the cost? Let's take a 25-year-old contractor who buys life cover early, let's say a 30-year term on the basis he thinks he'll buy a house in the next five years with a 25-year mortgage.

He takes £100,000 over 30 years - today's premium is £6.18 per month. If we compare this to waiting until he is 30 and taking a 25-year term, the price jumps to £6.81 (presuming he is still healthy of course). The difference over the term is £181, which works out, on this example, at £6 per year, or 50p per month.

That's £100k of life cover for an extra five years at 50p per month. Is that really such a waste of money?

Neither view is categorically right or wrong. It's about the individual - but if you were in permanent employment, you would likely receive the benefit of 'death in service benefit' of up to 4 times salary. 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.

If you wish to be contacted about Contractor Life Cover, please request a call back from one of our financial advisors.

John Yerou is Managing Director of Freelancer Financials, an independent Financial Adviser that specialises in finding financial solutions tailored to freelance contractors.

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