Life Insurance for the Self-Employed

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ByMelissa Wylie
Edited byCasie McCoskey
ByMelissa Wylie
Edited byCasie McCoskey

Updated: May 22, 2024

Advertising & Editorial Disclosure

Various types of life insurance policies, including term, whole and universal life, are available to self-employed people. However, unlike traditional employees, who often have access to group insurance policies through their employers, self-employed individuals are responsible for buying their own coverage. This makes understanding the different types of life insurance policies all the more beneficial.

People seeking self-employed life insurance may also face additional challenges in obtaining an adequate policy due to the nature of their work. Knowing what factors influence life insurance costs and the steps to take to apply can help you find the best life insurance based on your needs and circumstances.

Should Self-Employed People Buy Life Insurance?

Self-employed individuals face unique challenges compared to traditional employees, and buying life insurance is no exception. Unlike those in conventional employment, self-employed people don't have the cushion of employer-provided life insurance. They may want to consider purchasing an individual policy.

Having a life insurance policy in place can provide a significant financial safety net for your loved ones. It ensures they have the necessary financial support in the event of your untimely death.

How to Determine Life Insurance Coverage

When determining how much life insurance you need as a self-employed individual, there are several factors to consider. Aside from replacing lost income, think about your financial obligations like debts, mortgages and ongoing expenses. You can also factor in probable end-of-life costs and possible future expenses.

A common rule of thumb is to buy coverage that's about 10–15 times your annual income. Since everyone's situation differs, a more thorough needs analysis may be necessary to determine the right figure. For instance, you may need more coverage if you have a large mortgage or young children. On the other hand, if your mortgage is paid off and your children are grown, you may need less.

Regularly reviewing these factors is beneficial, as your life insurance needs may change with significant life events like marriage, the birth of a child or purchasing a home. Staying vigilant about these changes ensures you maintain life insurance that aligns with your evolving life stages.

Factors Affecting Life Insurance Costs

The cost of life insurance also varies per policyholder. Insurance companies consider individualized factors when calculating premiums, ranging from age and health to lifestyle choices and policy types.

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    Term Length

    The length of the policy term can significantly impact the cost of life insurance. Longer terms typically come with higher premiums as the risk of the policyholder dying increases over time. Permanent life insurance policies are also more expensive than term life insurance.

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    Coverage Amount

    The amount of coverage you choose directly affects your premiums. The higher the death benefit, which is the money paid out to your beneficiaries upon your death, the more you'll pay in premiums.

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    Smoking Status

    Smokers typically pay higher premiums than nonsmokers because they pose a higher risk to insurers due to the health risks associated with tobacco use.

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    Overall Health

    Your overall health plays a significant role in determining your life insurance premiums. Chronic or serious health conditions can lead to higher premiums. In comparison, a clean bill of health can result in lower premium rates.

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    Your lifestyle choices can also impact your premiums. For instance, you may face higher premiums if you participate in high-risk activities like skydiving or car racing.

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    Family Medical History

    Insurers also consider your family medical history when determining your premiums. For example, you may face higher premiums if your family has a history of certain medical conditions, like heart disease or cancer.

Understanding these factors will help prepare you for finding the best life insurance for self-employed individuals, allowing for a more informed decision-making process.

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The nature of your job can also affect life insurance rates. Certain professions, such as those in the construction and roofing industries, are considered high-risk by insurance companies, which could lead to more expensive premiums. If you're self-employed in fields like these, it's worth shopping around for the best rates.

Is Self-Employed Life Insurance Tax Deductible?

Life insurance premiums are generally not tax deductible. The Internal Revenue Service (IRS) categorizes life insurance as a personal expense.

That said, there are some exceptions. For example, if you're a business owner and have a policy covering your employees, the premiums may be deductible as a business expense. Remember that tax laws may change over time, so it's a good idea to consult with a tax professional or the IRS to understand your specific situation.

Types of Life Insurance for the Self-Employed

Several types of life insurance policies are available to self-employed individuals. Understanding these can help you choose the right policy for your needs.

Types of Life Insurance

Term Life Insurance

These policies provide coverage for a specific period or term. It's typically the most affordable type of life insurance and can be a good choice for those on a budget or needing coverage for a specific period. If you pass away during the term, your term life insurance will pay your beneficiaries the death benefit.

Whole Life Insurance

This type of permanent life insurance provides coverage for your entire life. There's also a cash value component that grows over time. Because of this, whole life insurance is typically more expensive than term life insurance.

Universal Life Insurance

Another type of permanent life insurance, universal life insurance, offers flexible premiums and a cash value component that can earn interest. Unlike whole life insurance, this kind of policy allows you to adjust your premium and death benefit amounts.

Variable Life Insurance

This type of permanent life insurance allows policyholders to invest the cash value component in various investment options. The cash value and death benefit of variable life insurance are not guaranteed. They may fluctuate depending on the performance of your investments.

Considerations When Choosing Life Insurance for the Self-Employed

Choosing the right life insurance policy for self-employed individuals involves considering several personal and financial factors.

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    Financial Needs

    When choosing life insurance for the self-employed, consider the financial needs of your dependents. This includes daily living expenses, outstanding debts, future education costs for your children and end-of-life expenses. A comprehensive evaluation of these needs will help you determine the coverage amount that would provide adequate financial protection for your loved ones.

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    Health Status

    If you have health issues, seeking insurers specializing in high-risk cases may be beneficial. These insurers often have more experience and understanding in underwriting policies for individuals with health conditions, potentially offering more competitive rates.

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    Your budget plays a crucial role in the type of life insurance policy you can afford. Generally, it's better to have a smaller policy that you can consistently maintain than a larger one that could lapse due to nonpayment.

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    Policy Features

    Different life insurance policies offer various features or riders to enhance your coverage. Understanding these features can help you choose a policy that aligns with your personal needs and circumstances.

Engaging with these considerations facilitates your journey toward securing the best life insurance policies as a self-employed person, ensuring a financially prudent and comprehensively protective fit.

How to Get Life Insurance for the Self-Employed

Getting life insurance as a self-employed individual involves a few key steps, which we highlight below.

Assess Your Needs

The first step in getting self-employed life insurance is to assess your needs. This involves determining the amount of coverage you need to provide adequate financial protection to your loved ones after you pass away. Consider factors such as your income, financial obligations and the future financial needs of your dependents. Consider the policy type that best suits your needs and circumstances, such as term life or whole life insurance.

Compare Quotes

Once you clearly understand your needs, start comparing life insurance quotes from multiple insurers. This will give you a sense of the range of rates available and help you identify the most cost-effective options. Remember that the cheapest policy isn't always the best; consider the insurer's reputation, customer service and policy features.

Apply for Coverage

After selecting an insurer, the next step is to apply for coverage. This typically involves completing an application form where you'll provide information about your health, lifestyle and occupation. Be honest and thorough in your responses, as inaccurate information can lead to policy cancellation or the denial of a claim.

Undergo a Medical Exam

Most life insurance applications involve a medical exam. This is part of the insurer's underwriting process, which helps them assess your health and calculate your premium. The exam usually includes basic health checks such as blood pressure, cholesterol and other vital signs.

Review and Sign Your Policy

If your application is approved, the insurer will send you a policy document to review and sign. This document outlines the terms of your coverage, including the death benefit, premium amount and any exclusions or riders. Read this document carefully and ensure you understand all the terms before signing. Don't hesitate to ask your insurer or a trusted advisor if you have any questions.

FAQ About Life Insurance for the Self-Employed

Navigating life insurance as a self-employed individual can raise many questions. Here are answers to some common queries.

Can self-employed individuals get life insurance?
What type of life insurance do you need if you're self-employed?
Are life insurance policies a good investment?
Why is life insurance important if you're self-employed?
Is life insurance tax deductible for self-employed?

About Melissa Wylie

Melissa Wylie headshot

Melissa Wylie is a Content and SEO Manager at MoneyGeek. Melissa has worked in the financial content space since 2018 and has spent much of that time focused on all things small business.

Prior to joining MoneyGeek, Melissa held SEO positions at Bankrate and LendingTree. Melissa’s work has also appeared on LendingTree-owned websites ValuePenguin and MagnifyMoney.

Melissa began her career at American City Business Journals in 2015 as a reporter for the company’s women-focused publication Bizwomen. Melissa has a Bachelor of Arts in Journalism from the University of North Texas. Melissa relies on her foundation in journalism to craft content that simplifies complex financial topics to help everyone feel confident when making decisions with their money.

Melissa's other work can be read on LendingTree and Bizwomen.