Life Insurance for Side Hustle Workers UK
The UK's workforce is transforming. The traditional 9-to-5 is no longer the only path to a prosperous career. Millions of us are now embracing the flexibility and financial rewards of the "side hustle" – building businesses, freelancing, and pursuing passions alongside our main employment.
According to recent 2025 studies, a staggering one in three British adults now has a side hustle, contributing an estimated £125 billion to the UK economy. From graphic designers and online sellers to delivery drivers and weekend tradespeople, this new wave of hybrid workers is redefining what it means to earn a living.
But with this new-found financial freedom comes a crucial question: is your financial safety net keeping pace? While a primary job might offer a comforting package of sick pay and death-in-service benefits, these rarely extend to cover the income you work so hard to generate in your own time. This creates a potentially dangerous "protection gap" that could leave you and your loved ones financially vulnerable if the unexpected happens.
This definitive guide is designed for the UK's growing army of side hustle workers. We'll explore the specific insurance policies designed for people with multiple income streams, helping you understand how to protect your total earnings, not just a portion of them.
Policies Designed for People with Multiple Income Streams
For anyone juggling a PAYE salary with self-employed income, a one-size-fits-all approach to financial protection simply doesn't work. Your financial life is more complex, and your insurance needs to reflect that. The loss of your side hustle income, even if your main salary remains, could significantly impact your family's ability to pay the mortgage, cover bills, and maintain their lifestyle.
Thankfully, the UK insurance market offers a suite of flexible products that can be tailored to your unique circumstances. The key is to look at your income holistically and build a protection portfolio that covers every pound you earn.
The three core pillars of personal protection for anyone with multiple income streams are:
- Life Insurance: Provides a financial payout to your loved ones if you pass away. This can be structured as a lump sum or a regular income to replace your lost earnings from all sources.
- Income Protection: Acts as your personal sick pay, providing a regular, tax-free monthly income if you're unable to work due to illness or injury. This is vital for replacing income from both your main job and your side hustle.
- Critical Illness Cover: Pays out a tax-free lump sum if you are diagnosed with a specific, serious condition defined in the policy. This provides a financial cushion to manage the significant costs associated with a life-changing health event.
Let's delve deeper into why these policies are not just a "nice-to-have" but an absolute necessity for the modern worker.
Why Side Hustle Workers Need to Rethink Their Financial Safety Net
The allure of a side hustle is undeniable—extra income, creative fulfilment, and a step towards financial independence. However, this entrepreneurial spirit often means stepping outside the traditional safety net of employment benefits.
The "Protection Gap" Reality
The Financial Conduct Authority (FCA) has long highlighted the UK's significant protection gap. A 2024 report indicated that millions of households would face severe financial hardship if a primary earner were to fall ill or pass away. For side hustle workers, this gap can be even more pronounced. Your employer's benefits, if you have them, are calculated based on your salaried income alone.
Consider this:
- Death-in-Service: A common benefit is a 'death-in-service' payment, typically 2 to 4 times your basic salary. This won't account for the £10,000, £20,000, or more you generate from your side hustle.
- Statutory Sick Pay (SSP): If you're employed and fall ill, you're entitled to SSP. As of 2025, this is just £116.75 per week. It is a minimal safety net that will not come close to replacing your combined income. If you're purely self-employed, you aren't entitled to it at all.
The Challenge of Variable Income
A key feature of many side hustles is fluctuating income. One month might bring a windfall from a large project, while the next could be quieter. This variability makes financial planning crucial, but it also means that a sudden stop in that income—due to an accident or illness—can be devastating. Without a robust plan, you could burn through your emergency savings in a matter of weeks.
Let’s look at a simple example:
- Priya, a full-time NHS nurse, earns £35,000 a year. On her days off, she runs a successful cake-making business for local events, bringing in an extra £15,000 a year.
- Her total household income is £50,000.
- Her NHS death-in-service benefit is 2x her salary, which is £70,000.
- If Priya were to pass away, her family would lose her entire £50,000 income, but only receive a £70,000 payout – less than 1.5 times her total annual earnings. This would barely cover a few years of mortgage payments, let alone day-to-day living costs.
This is the reality for millions. Your side hustle isn't just a hobby; it's a vital part of your financial architecture. It deserves to be protected.
Decoding Life Insurance for Multiple Incomes
Life insurance is the cornerstone of financial protection. It’s a promise that, should the worst happen to you, the people who depend on you will be financially supported. For those with multiple income streams, getting the calculation right is paramount.
What is Life Insurance?
In its simplest form, life insurance is a contract between you and an insurer. You pay regular premiums, and in return, the insurer agrees to pay out a specified sum of money upon your death during the policy term. This money is paid to your designated beneficiaries and is almost always tax-free.
Key Types of Life Insurance for Side Hustlers
There isn't a special "side hustle" policy, but certain types of cover are better suited to the needs of those with complex incomes.
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Level Term Life Insurance: This is the most straightforward type of cover. You choose a lump sum amount (the 'sum assured') and a policy length (the 'term'). If you die within the term, your beneficiaries receive the full, fixed lump sum.
- Best for: Providing a substantial financial cushion for your family, covering an interest-only mortgage, or leaving a legacy. It can be calculated to replace your lost side hustle income for a set number of years.
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Decreasing Term Life Insurance: With this policy, the potential payout reduces over the policy term, usually in line with a repayment mortgage or other large loan. Because the liability decreases over time, premiums are typically lower than for level term cover.
- Best for: Specifically covering a repayment mortgage, ensuring your family can remain in the family home without your income.
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Family Income Benefit (FIB): This is an often-overlooked but incredibly powerful tool for anyone with a side hustle. Instead of paying a single lump sum, an FIB policy pays out a regular, tax-free monthly or annual income to your family for the remainder of the policy term.
- Best for: Directly replacing your lost monthly income from all sources. It makes budgeting easier for your beneficiaries and prevents them from having to manage a large, potentially intimidating, lump sum.
Let's compare a lump sum policy with Family Income Benefit:
| Feature | Level Term (Lump Sum) | Family Income Benefit (Income) |
|---|---|---|
| Payout | A single, large, tax-free payment. | Regular, tax-free monthly or annual payments. |
| Example | £300,000 lump sum. | £1,500 per month (£18,000 per year). |
| Best Use | Clearing large debts like a mortgage. | Replacing lost monthly income for budgeting. |
| Cost | Generally more expensive. | Often more affordable for the same level of cover. |
How Much Cover Do You Need?
The golden rule is to insure your total income.
- Calculate Your Total Annual Income: Combine your salaried PAYE income with the profit from your side hustle. For variable self-employed income, insurers will typically want to see an average of the last two to three years. Use your SA302 tax calculations from HMRC as evidence.
- Assess Your Outgoings: Add up your major financial commitments:
- Remaining mortgage balance
- Any personal loans, car finance, or credit card debt
- Estimated annual living costs for your family (food, bills, transport)
- Future costs like university fees for children
- Subtract Your Assets: Deduct any existing death-in-service benefits, savings, investments, or other life insurance policies.
- The Result: The figure you're left with is your protection shortfall—the amount of life insurance you need.
An expert broker can be invaluable here. At WeCovr, we help you perform this analysis accurately, ensuring you apply for a level of cover that truly protects your family's future, based on your complete financial picture.
Income Protection: The Self-Employed Person's Sick Pay
While life insurance protects your family after you're gone, income protection (IP) is designed to protect you and your lifestyle while you're alive. For anyone whose income relies on their ability to actively work—be it coding, consulting, crafting, or driving—this is arguably the most important policy you can own.
What is Income Protection?
Income Protection insurance pays you a regular monthly income if you are unable to work due to any illness or injury. It continues to pay out until you can return to work, the policy term ends (typically at your chosen retirement age), or you pass away, whichever comes first.
The benefits are paid tax-free and can typically cover up to 60-70% of your gross (pre-tax) total income.
Why IP is Essential for Side Hustlers
Imagine you break your arm in a cycling accident. You might get Statutory Sick Pay from your main job, but you certainly can't do your weekend removals work or type up freelance articles. Your side hustle income stops overnight. Income Protection is designed to fill this gap, replacing a percentage of your earnings from all declared sources.
Understanding Key Income Protection Features
Choosing an IP policy involves several key decisions:
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Deferred Period: This is the pre-agreed waiting period between when you stop working and when the policy starts paying out. It can range from 4 weeks to 52 weeks. The longer the deferred period you choose, the lower your monthly premiums will be. A common strategy is to align your deferred period with your emergency savings (e.g., if you have 3 months of savings, choose a 13-week deferred period).
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Level of Cover: As mentioned, this is usually a percentage of your total gross income. When applying, you must declare both your employed salary and your self-employed profits to get a policy that reflects your true earnings.
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Definition of Incapacity: This is the most critical part of any IP policy. It defines the criteria you must meet to be considered "incapable of working." There are three main definitions:
| Definition of Incapacity | Explanation | Recommendation |
|---|---|---|
| Own Occupation | The best definition. You will be paid if you are unable to do your specific job (e.g., a surgeon with a hand tremor). | The Gold Standard. Always aim for this. |
| Suited Occupation | You will only be paid if you cannot do your own job or any other job you are suited to by skills and experience. | Less comprehensive. Can lead to disputes. |
| Any Occupation | The least comprehensive. You will only be paid if you are so incapacitated you cannot do any kind of work. | Avoid this if at all possible. |
Navigating these options can be complex. At WeCovr, we help you compare policies from leading UK insurers to find 'Own Occupation' cover that provides the strongest and most reliable protection for your unique combination of jobs.
Critical Illness Cover: A Financial Cushion for Serious Health Shocks
A serious illness can strike at any time, and the impact is not just physical and emotional, but financial too. Critical Illness Cover (CIC) is designed to alleviate that financial pressure, giving you space to focus on your recovery.
What is Critical Illness Cover?
CIC pays out a tax-free lump sum if you are diagnosed with one of a list of predefined serious illnesses. The number and type of conditions covered vary significantly between insurers, but typically include:
- Specific types of cancer
- Heart attack
- Stroke
- Multiple sclerosis
- Kidney failure
- Major organ transplant
According to the Association of British Insurers (ABI), UK insurers paid out over £1.48 billion in critical illness claims in 2023, with the average payout being over £67,000. The most common causes for claims remain cancer, heart attack, and stroke.
How CIC Helps Side Hustlers
Unlike income protection, which replaces monthly income, the CIC lump sum is yours to use however you see fit. For a side hustler, this flexibility is invaluable. You could use the money to:
- Clear your mortgage or other debts
- Pay for specialist medical treatment or consultations not available on the NHS
- Adapt your home (e.g., install a stairlift)
- Fund a period of time off for both you and your partner
- Replace lost income from both your main job and side hustle while you recover
Many people choose to combine Life Insurance and Critical Illness Cover into a single policy. This is often more cost-effective than buying two separate plans.
Specialist Cover for When Your Side Hustle Becomes the Main Event
For many, a side hustle is the first step towards running a full-time business. If your venture is registered as a limited company, a new world of tax-efficient business protection opens up.
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Key Person Insurance: If your business's success hinges on you (or another key individual), this policy is vital. The business takes out and pays for a policy on the 'key person'. If that person dies or becomes critically ill, the policy pays out to the business, providing funds to cover lost profits, recruit a replacement, or repay business loans.
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Executive Income Protection: This is a way for a limited company to provide high-quality sick pay for its directors. The company pays the premiums, which are typically an allowable business expense. If the director is unable to work, the benefit is paid to the company, which then distributes it to the director as salary, after deducting tax and National Insurance. It’s a highly tax-efficient way to secure your income.
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Relevant Life Insurance: This is essentially 'death-in-service' for small businesses and contractors. The company pays the premiums for a life insurance policy on an employee or director. The premiums are usually tax-deductible, and the benefit is paid directly to the individual's family, free of tax and outside of their estate for Inheritance Tax (IHT) purposes.
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Gift Inter Vivos Insurance: For successful business owners planning their estate, this is a niche but important product. If you gift assets (like shares in your company) to your children, they could face a large Inheritance Tax bill if you die within seven years of making the gift. This policy provides a lump sum to cover that exact tax liability.
The Application Process: Declaring Your Incomes Correctly
When you apply for any protection policy, insurers will conduct a thorough financial and medical underwriting process. For those with multiple incomes, absolute transparency is crucial.
Honesty is the Only Policy
You must declare all your income sources and the nature of all your jobs. Failing to disclose your side hustle, or the income it generates, could be considered 'non-disclosure'. In the worst-case scenario, this could lead to your insurer refusing to pay a claim, rendering your policy worthless.
Be prepared to provide evidence of your earnings.
| Document to Prepare | Purpose of Document | Where to Find It |
|---|---|---|
| Payslips (last 3 months) | Evidence of your PAYE salary. | Your employer's HR or payroll portal. |
| P60 Form | Annual summary of your employed income and tax. | Your employer (issued annually around April/May). |
| SA302 / Tax Year Overview | Official confirmation of your self-employed income. | Your HMRC online account or your accountant. |
| Certified Accounts | For limited company directors, shows company profit/salary. | Prepared by your accountant. |
| Bank Statements | Can be used as supporting evidence of income flow. | Your bank. |
Insurers will also ask detailed questions about the duties involved in all your jobs. A weekend role as a delivery driver carries different risks to a weekday office job, and this may be reflected in your premiums.
Wellness, Health, and Reducing Your Premiums
Insurers are in the business of risk. The healthier you are, the lower the risk you represent, and the lower your premiums will be. For side hustlers, who are often working long hours, prioritising health is a win-win: it boosts your productivity and can save you money on insurance.
- Quit Smoking: This is the single most impactful change you can make. A non-smoker can pay up to 50% less for life insurance than a smoker.
- Maintain a Healthy BMI: A Body Mass Index (BMI) within the healthy range (18.5-24.9) will secure you the best rates.
- Moderate Alcohol Consumption: Be honest about your weekly unit intake. Lower, responsible consumption leads to better premiums.
Many modern insurance policies now come with valuable wellness benefits, such as:
- Free 24/7 virtual GP access
- Mental health support and counselling sessions
- Discounts on gym memberships and fitness trackers
- Second medical opinion services
At WeCovr, we believe in supporting our clients' holistic wellbeing. That's why, in addition to finding you the most suitable and competitive protection policy, we provide all our customers with complimentary access to CalorieHero, our proprietary AI-powered calorie and nutrition tracking app. It’s our way of helping you build healthier habits that not only improve your quality of life but can also lead to more favourable insurance outcomes in the long run.
Key Takeaways for Side Hustle Workers
The world of work has changed, and your approach to financial protection needs to change with it. Juggling multiple income streams requires a proactive and holistic approach to securing your financial future.
- Acknowledge the Gap: Your employer's benefits will not cover your side hustle income. You are responsible for protecting it.
- Think Holistically: Calculate your insurance needs based on your total income from all sources.
- Prioritise Income Protection: This is your personal sick pay and the most fundamental protection for anyone who relies on their ability to actively work. Insist on an 'Own Occupation' definition.
- Use the Right Tools: Consider Family Income Benefit as a cost-effective way to directly replace lost monthly earnings for your family.
- Be Honest: Full disclosure of all your jobs and income streams during the application is non-negotiable.
- Seek Expert Advice: The market is complex. A specialist broker can help you navigate the options, compare policies from across the market, and ensure your application is positioned for success.
Your side hustle is a testament to your hard work and ambition. Don't let that effort go unprotected. Taking the time to build a robust financial safety net is one of the smartest business decisions you can make.
Do I need to declare my side hustle income if it's very small or just 'cash in hand'?
Can I get income protection if my side hustle income is very irregular?
My main job provides death-in-service cover. Is that enough?
What happens to my policy if I stop my side hustle?
Is life insurance more expensive for someone with a side hustle?
Can I get cover if my side hustle is a 'risky' job like delivery driving or working in the trades?
Related guides
Why life insurance and how does it work?
What is Life Insurance?
Life insurance is an insurance policy that can provide financial support for your loved ones when you or your joint policy holder passes away. It can help clear any outstanding debts, such as a mortgage, and cover your family's living and other expenses such costs of education, so your family can continue to pay bills and living expenses. In addition to life insurance, insurance providers offer related products such as income protection and critical illness, which we will touch upon below.How does it work?
Life insurance pays out if you die. The payout can be in the form of a lump sum payment or can be paid as a replacement for a regular income. It's your decision how much cover you'd like to take based on your financial resources and how much you'd like to leave to your family to help them deal with any outstanding debts and living expenses. Your premium depends on a number of factors, including your occupation, health and other criteria.The payout amount can change over time or can be fixed. A level term or whole of life policy offers a fixed payout. A decreasing term policy offers a payout that decreases over the term of the cover.
With critical illness policies, a payout is made if you’re diagnosed with a terminal illness with a remaining life expectancy of less than 12 months. While income protection policies ensure you can continue to meet your financial commitments if you are forced to take an extended break from work. If you can’t work because you’ve had an accident, fallen sick, or lost your job through no fault of your own, income protection insurance pays you an agreed portion of your salary each month.
Income protection is particularly helpful for people in dangerous occupations who want to be sure their mortgage will always be covered. Income protection only covers events beyond your control: you’re much less likely to be covered if you’re fired from your job or if you injure yourself deliberately.
Questions to ask yourself regarding life insurance
Just ask yourself:👉 Who would pay your mortgage or rent if you were to pass away or fall seriously ill?
👉 Who would pay for your family’s food, clothing, study fees or lifestyle?
👉 Who would provide for the costs of your funeral or clear your debts?
👉 Who would pay for your costs if you're unable to work due to serious illness or disability?
Many families don’t realise that life, income protection and critical illness insurance is one of the most effective ways to protect their finances. A great insurance policy can cover costs, protect a family from inheriting debts and even pay off a mortgage.
Many would think that the costs for all the benefits provided by life insurance, income protection insurance or critical illness insurance are too high, but the great news is in the current market policies are actually very inexpensive.
Benefits offered by income protection, life and critical illness insurance
Life insurance, income protection and critical illness insurance are indispensable for every family because a child loses a parent every 22 minutes in the UK, while every single day tragically 60 people suffer major injuries on the UK roads. Some people become unable to work because of sickness or disability.Life insurance cover pays out a lump sum to your family, loved ones or whomever you choose to get the money. This can be used to secure the financial future of your loved ones meaning they would not have to struggle financially in the event of your death.
If it's a critical illness cover, the payout happens sooner - upon diagnosis of a serious illness, disability or medical condition, easing the financial hardship such an event inevitably brings.
Income protection insurance can be very important for anyone who relies on a pay check to cover their living costs, but it's especially important if you’re self-employed or own a small business, where your employment and income is a bit less stable. It pays a regular income if you can't work because of sickness or disability and continues until you return to paid work or you retire.
In a world where 1 in 4 of us would struggle financially after just four weeks without work, the stark reality hits hard – a mere 7% of UK adults possess the vital shield of income protection. The urgency of safeguarding our financial well-being has never been more palpable.
Let's face it – relying on savings isn't a solution for everyone. Almost 25% of people have no savings at all, and a whopping 50% have £1,000 or less tucked away. Even more concerning, 51% of Brits – that's a huge 27 million people – wouldn't last more than one month living off their savings. That's a 10% increase from 2022.
And don't even think about state benefits being a safety net. The maximum you can expect from statutory sick pay is a mere £109.40 per week for up to 28 weeks. Not exactly a financial lifeline, right?
Now, let's tackle a common objection: "But I have critical illness insurance. I don't need income protection too." Here's the deal – the two policies apply to very different situations. In a nutshell:
- Critical illness insurance pays a single lump sum if you're diagnosed with or undergo surgery for a specified potentially life-threatening illness. It's great for handling big one-off expenses or debts.
- Income protection, on the other hand, pays a percentage of your salary as a regular payment if you can't work due to illness or injury. It's the superhero that tackles those relentless monthly bills.
Types of life insurance policies
Common reasons for getting a life insurance policy are to:✅ Leave behind an amount of money to keep your family comfortable
✅ Protect the family home and pay off the mortgage in full or in part
✅ Pay for funeral costs
Starting from as little as a couple of pounds per week, you can do all that with a Life Policy.
Level Term Life Insurance
One of the simplest forms of life insurance, level term life insurance works by selecting a length of time for which you would want to be covered and then deciding how much you would like your loved ones to receive should the worst happen. Should your life insurance policy pay out to your family, it would be in a lump sum amount that can be used in whatever way the beneficiary may wish.
Decreasing Term Life Insurance
Decreasing term life insurance works in the same way as level term, except the lump sum payment amount upon death decreases with time. The common use for decreasing term life cover is to protect against mortgage repayment as the lump sum decreases along with the principal of the mortgage itself.
Increasing Term Life Insurance
Increasing term life insurance aims to pay out a cash sum growing each year if the worst happens while covered by the policy. With increasing term life cover amount insured increases annually by a fixed amount for the length of the policy. This can protect your policy's value against inflation, which could be advantageous if you’re looking to maintain your loved ones’ living standards, continue paying off your mortgage in line with its repayment schedule and cover your children’s education fees.
Whole of Life Insurance
Whereas term life insurance policies only pay out if you pass away during their term, whole of life insurance pays out to your beneficiaries whenever this should happen. The most common uses for whole life insurance are to cover the costs of a funeral or as a vehicle for your family's inheritance tax planning.
Family Income Benefit
Family income benefit is a somewhat lesser-known product in the family of life insurance products. Paying out a set amount every month of year to your beneficiaries, it is the most cost-effective way of maintaining your family's living standards to an age where you'd expect them to be able to support themselves financially. The most common use would be for a family with children who are not working yet so are unable to take care of themselves financially.
Relevant Life Insurance
Relevant Life Insurance is a tax-efficient policy for a director or single employee. A simple level term life insurance product, it is placed in a specific trust to ensure its tax efficiency. The premiums are tax deductible and any benefit payable should a claim arise is also paid out tax free, which makes it an attractive product for entrepreneurs and their businesses.
Important Fact!
We can look at a more suitable option mid-term!
Why is it important to get life insurance early?
👉 Many people are very thankful that they had their life, income protection, and critical illness insurance cover in place before running into some serious issues. Critical illness and income protection insurance is as important as life insurance for protecting your family's finances.👉 We insure our cars, houses, bicycles and even bags! Yet our life and health are the most precious things we have.
Easily one of the most important insurance purchases an individual or family can make in their lifetime, the decision to buy life, income protection, critical illness and private medical health insurance can be made much simpler with the help of FCA-authorised advisers. They are the specialists who do the searching and analysis helping people choose between various types of life insurance policies available in the market, including income protection, critical illness and other types of policies most suitable to the client's individual circumstances.
It certainly won't do any harm if you speak with one of our experienced FCA-authorised insurance partner experts who are passionate about advising people on financial matters related to life insurance and are keen to provide you with a free consultation.
You can discuss with them in detail what affordable life, income protection, critical illness or private medical health insurance plan for the necessary peace of mind they would recommend! WeCovr works with some of the best advisers in the market.
By tapping the button below, you can book a free call with them in less than 30 seconds right now:
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WeCovr is an insurance specialist for people valuing their peace of mind and a great service.👍 WeCovr will help you get your private medical insurance, life insurance, critical illness insurance and others in no time thanks to our wonderful super-friendly experts ready to assist you every step of the way.
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