Why Is Life Insurance Important for Self-Employed?


Self-employed people account for roughly 30% of the workforce in the United States, which is a sizable proportion when you think about it. However, if you are your boss, you will not receive the same benefits as employees in corporations. As a result, protecting yourself with protection such as life insurance becomes even more important. Being self-employed has several great advantages that appeal to many people. You can take a vacation whenever you want, you can control your budget, you can work in a space that suits you, and you can continue to develop professional skills every day.

Along with the benefits of freedom and control, there are some drawbacks. Along with producing your work, you must also ensure that you have paid your taxes and maintained a high level of organization. You may also miss out on some of the benefits that come with employment, such as a death-in-service benefit.

This guide will cover self-employed life insurance and everything you need to know about obtaining coverage.

Why is Life Insurance Important for Self-Employed?

Life insurance for self-employed people can provide a sense of security in an unpredictable career. Due to the lack of employee benefits, self-employment life insurance is arguably more important than full-time employment. Here are a few business reasons why you should have life insurance:

  • You want your company to survive without you.
  • You have business debt or real estate that you do not want your family to be responsible for.
  • Also, you must fund a buy-sell agreement to assist someone, possibly a beneficiary or a partner, in purchasing your business.

Personal reasons for needing life insurance include:

  • When you’re self-employed, getting life insurance can provide you with more stability and peace of mind. And now that you know what options are available to you, you can make an informed decision about the best self-employed life insurance option for you and return to focusing on growing your business into a global success.
  • You have business loans that are secured by personal assets, such as your home, and you don’t want your family to lose them.
  • Your family will have to sell the business quickly because they are not equipped to run it.
  • To support your family while they learn the business because they understand how important it is to you. While you can’t put a price on freedom, not having adequate insurance coverage may end up costing your family more than you anticipated. Your family’s financial future is dependent on your planning. Life insurance is the most effective way to protect and provide for your loved ones after you die.

How to Determine how much Life Insurance a Self-employed Needs?

The amount of coverage you require will be determined not only by your income, but also by your savings, loans, and other expenses. To figure out how much life insurance you need, do the following:

  • Compile your resources (after-tax income and liquid assets, such as cash, checking, and savings accounts)
  • Add your expenses and debt to determine your financial obligation.
  • To calculate your coverage gap, subtract your resources from your financial obligation (financial obligation – resources = coverage gap).
  • Your coverage gap can help you determine how much life insurance you need (plus an additional sum to ensure a financial cushion)

Self-employed persons may have multiple sources of income, so add them all up to get an accurate picture of your coverage gap. Rideshare drivers may be required to account for a car loan, whereas vacation and homestay rental hosts may be required to account for larger mortgages. People with cash-only income streams, such as food industry workers who earn tips, should also account for that income.

How to Calculate Income when it’s Unpredictable?

To determine how much income you have, enter your annual salary. To be approved for coverage, you must also provide proof of income. However, if your income is not consistent or fluctuates from month to month, this calculation can be perplexing. You have two choices:

  • Use the income you reported on your most recent annual income tax return. This is the simplest method for determining what number to use as your annual income.
  • Multiply your highest-earning month by 12. This represents your earning potential, so your higher-earning capability is covered.

When calculating your annual income, consider all revenue streams, including tips and multiple clients or contracts. To calculate your total income, use bank statements or other documentation.

life insurance for self-employed

How to Buy Life Insurance as a Self-employed?

The next steps are simple once you’ve determined how much life insurance you require and what type of policy you require. Gather the paperwork you’ll need to get started, such as proof of income, residency, identity, citizenship, and age. The simple steps you should take-

  • Compare quotes from various insurance companies when shopping for a life insurance policy.
  • Finish the application and phone interview.
  • Obtain a medical examination.
  • Wait for the results of the underwriting.
  • Sign the paperwork and pay for your policy.

Is Life Insurance Tax Deductible if you are Self-employed?

Self-employment allows you to deduct health insurance premiums and other business expenses. Unfortunately, life insurance does not operate in the same manner, and premiums are not tax-deductible.

The only exception is if you own your own business and provide life insurance as a benefit to your employees. Certain types of business owners are allowed to deduct premium payments made to their employees. This is true for limited liability companies, S corporations, and sole proprietorships.

There are several other exceptions and regulations, so if you’re a typical freelancer or gig worker, you’re unlikely to qualify for this type of tax deduction. To mimic traditional workplace perks, we recommend full-time gig workers set up a private benefits package that includes health or disability insurance and retirement savings accounts in addition to life insurance.

What are the Life Insurance Options for Self-Employed?

There are several life insurance options for the self-employed. They are-

#1. Term life insurance policy

Self-employed people frequently prefer term policies. It has a set duration, which is usually between five and thirty years. So, if you’re self-employed for 20 years, you could theoretically cover yourself for that period. Getting term insurance also means paying the lowest premiums available–less it’s expensive than other types of life insurance.

A term policy is less expensive than other types of life insurance, but it only provides a death benefit. If you live to the end of the policy, there are no benefits, and you must renew at your new age if you want to extend your coverage beyond the initial term.

#2. Permanent life insurance

A permanent life insurance policy, like a term policy, includes a death benefit for your loved ones. However, it offers other benefits while you are still alive, such as wealth accumulation. As a result, a permanent policy is more expensive than term coverage. It also does not expire, so your premiums are fixed from the moment you sign up–you’ll pay the same amount every month.

For many, this is a better long-term investment than a term policy. In addition to fixed premiums, you can enjoy benefits while you’re still alive.Anchor

Frequently Asked Questions

How does life insurance for self-employed people work?

Life insurance policies function the same whether you are employed or self-employed, but your reasons for purchasing a policy may differ. Term life insurance pays out if you die during the policy’s life (or “term”). When you purchase the policy, you will specify the length of the term, as well as the payout and monthly premiums.

Why is life insurance important for a self-employed person?

After you die, life insurance pays out money to your designated beneficiary, known as a death benefit. It can help your loved ones gain access to funds when they are in need. Understanding life insurance can assist you in making long-term financial plans for your family.

What is life insurance?

Life insurance is defined as a contract between the policyholder and the insurance company in which the insurance company pays a predetermined sum to the insured individual’s family upon his death.

Is it really necessary to have life insurance?

Although life insurance is not required as part of everyone’s estate plan, it can be beneficial, particularly for parents of young children and those who support a spouse or a disabled adult or child. Life insurance can help provide immediate cash at death, in addition to helping to support dependents.

Why should you not get life insurance?

There are three reasons to avoid purchasing a life insurance policy. Many insurance salespeople would rather you didn’t know: not everyone requires it. Those who require it the most are frequently the least able to afford it. It is a bad investment.


Anyone who works for themselves faces risks, both professionally and financially. Every day, your name and bank account are put on the line. But have you considered that other people join you on that limb every day? It could be the banker who gave you the loan to get your business started, the company you’re paying for all of the technology or tools you use, or the most vulnerable people — your family. If you are self-employed, we hope this article has helped you decide on life companies offer insurance.


murphyinsgrp.com– Why is life insurance important if you are self-employed

vitality.co.uk– Self-employed- Life insurance

finder.com– Life insurance for self-employed workers

fbfs.com– Life insurance for the self-employed

postoffice.co.uk– Life insurance self-employed.