Mortgage protection when self-employed

There's no layer underneath

Employees usually have some group life coverage, so a shortfall in personal coverage is partly cushioned. Self-employed people generally don't have that.

An individually owned policy is therefore the whole plan rather than a supplement, which argues for getting the amount right rather than approximately right.

Documenting income

For larger coverage amounts, financial underwriting verifies income to justify the amount. Self-employed income takes more explaining, particularly where you've legitimately minimised taxable profit.

• Two or more years of tax returns
• Business financial statements
• An accountant's letter
• Evidence of business ownership and its value
• Explanation of any year that looks unusual

Business debt on your personal balance sheet

Check what you've personally guaranteed. These obligations frequently survive you and are almost always missing from a coverage calculation.

• Business loans and SBA loans
• Lines of credit and equipment finance
• Premises lease guarantees
• Supplier and trade credit accounts
• Anything you signed as an individual as well as for the business

The business may not survive you

If the business depends on your licence, your relationships or your work, its value to your family may be much lower than its value to you.

That cuts two ways: your family may lose the income and also be unable to realise the business's worth. Coverage that gives them time to wind it down properly, rather than at fire-sale speed, is worth costing.

Also worth arranging

• Disability coverage, which self-employed people rarely have and need most
• Key person or buy-sell coverage, if there are partners
• A conversion privilege, since income variability may affect future affordability
• Annual payment of premiums, which often costs less in total
• A review whenever the business changes materially