Self Employed Life Insurance: Do You Need It?

If you’re self-employed, you already know the many benefits of this career path: The ability to set your own schedule, choose the projects you work on, and even exercise some control over your income. You can build a business that reflects your values ​​and interests, often while working in a field you’re passionate about.

Sounds pretty good, right?

But if you are self-employed, you also know the risks and challenges: The variable nature of your income. They lacked the perks that often come with traditional employment (health insurance, paid time off, retirement savings plans, an office that isn̵

And then there’s the stress: You’re constantly working to acquire new clients and projects to maintain your income. It’s a laugh.

Which brings us to life insurance. It can be easy for someone with an unpredictable income to think that life insurance is an expense they can do without.

However, if you are self-employed and have dependents, you should consider life insurance. Simply put, life insurance is a way to help cover your income in the event of your death. Your loved ones can use the payout to pay for all the things you won’t take care of, from clothes and groceries to rent or the mortgage.

It may seem like an extra expense, but think of buying life insurance as an investment in your own peace of mind – something you can’t afford to miss. Read on to understand why self-employed life insurance is essential.

What is life insurance?

Life insurance provides financial protection to individuals and their families upon the death of the policyholder. The policyholder’s beneficiaries can use the death benefit to pay for whatever they choose. Common expenses include funeral expenses, outstanding debts, and other financial obligations such as a mortgage or tuition.

When an individual takes out life insurance, they regularly pay premiums to the insurance company. The premium amount is based on factors such as the individual’s age, health and desired coverage.

When choosing a life insurance policy, it is crucial to consider several factors. The first step is to determine the amount of coverage you need. This depends on your financial obligations and how much debt you may have. Next, consider how much you can afford to pay in premiums and how long you want your coverage to last.

Continue reading to find out more.

What are the different types of life insurance?

There are two main types of life insurance: term life insurance and permanent life insurance. While each type of life insurance has its advantages and disadvantages, term life insurance is often considered the most affordable.

Life insurance provides coverage for a specified period of time (the term), usually 10, 15, 20, 25 or 30 years. During that time, you pay a monthly premium, which usually remains the same for the duration of the term. If you die during the term of the policy, the death benefit is paid to your beneficiaries tax-free, usually as a lump sum.

If you do not dies during the insurance period, no death benefit is paid. (On the plus side, though, you’re still alive.)

Many experts recommend buying coverage worth 5 to 10 times your annual salary and buying a term that lasts until your dependents are no longer, well, dependent. This could mean until your mortgage is paid off, or until you expect your children to graduate from college.

The term will then expire when you are older, and your health may have declined. That’s one reason why life insurance is often cheaper – it usually covers a time when you’re relatively young and healthy.

Something else to consider: When you’re older, you may no longer have dependents (since your children will have moved out and become thriving members of society). You may also earn no income, instead living on your retirement savings. All of this is to say that you may no longer need life insurance.

Permanent life insurance, including whole life and universal life insurance, provides just that: coverage for the policyholder’s entire life, as long as the premiums are paid. This means they’re usually more expensive than life insurance, because you’re buying coverage that includes your older, less healthy years.

And again, this may also mean that you buy coverage for a time when you no longer earn the income needed to pay expenses for your dependents. Each individual is of course different, so it may make sense to talk to a financial advisor about what is best for you.

How much does life insurance cost?

For a 35-year-old woman in excellent health, a 20-year, $500,000 term life insurance policy from Haven Life would cost $17.50 per month, or quite a bit less than you’d probably spend on, say, streaming TV services.

Here are a selection of quotes for a 20-year Haven Term life policy, issued by MassMutual or CM Life, for people in excellent health:

Term life insurance quotes

Estimate based on pricing for qualified Haven Term applicants in excellent health. Price differences will vary depending on age, health status, coverage amount and term length. These rates do not reflect rates for applicants in DE, FL, ND, NY and SD.

By comparison, a $500,000 permanent life insurance policy for the same 35-year-old woman in excellent health could cost $411 per month, based on a quote from State Farm. That’s more than $4,700 more per year.

Why might life insurance make sense for the self-employed?

As we’ve already noted, one of the trade-offs of self-employment is that your income can vary from month to month. The good news is that Haven Life life insurance premiums won’t – they’re flat for the length of the term you choose, meaning they won’t change, even as you get older and potentially less healthy. That’s the kind of security a freelancer can count on.

Something else to consider: Many traditional employers offer group life insurance as a benefit. While this is not enough coverage for most families, it is something. If you are self-employed, you are alone.

We mentioned earlier that experts often recommend getting life insurance coverage worth 5 to 10 times your annual salary. How do you do it when your annual income varies? You can average your last five years, or consider the trend line of your income. If you have charged higher prices for your work, a) congratulations; and b) take it into account when calculating how much life insurance you need.

Speaking of which, Haven Life has an online life insurance calculator to help you get up to speed on how much coverage you should get.

Conclusion

Life insurance is a critical factor for business owners who want to ensure the financial stability of their loved ones in the event of their death. With the flexibility and autonomy that comes with self-employment, certain risks and challenges must be considered. By understanding the different types of life insurance policies and their coverage, self-employed individuals can choose the best policy to meet their specific needs and goals.

Taking the necessary steps to protect your loved ones is important, and choosing the right life insurance policy can give you and your family peace of mind.