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Life insurance for self-employed people: do you need it?

What freelancers, gig workers and more should know about finding affordable coverage

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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 exert 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 great, right?

But if you’re self-employed, you also know the risks and challenges: The variable nature of your income. The missing benefits that often come with traditional employment (health insurance, paid time off, retirement savings plans, an office that isn’t your kitchen). You’re responsible for your own business expenses, including taxes, marketing, and equipment.

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

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

But if you’re self-employed, and you have dependents, you should give life insurance some consideration. 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 be around to take care of, from clothes and groceries to rent or mortgage.

It might seem like an added expense, but think of buying life insurance as an investment in your own peace of mind — something you can’t afford to miss. Keep reading to understand why life insurance for self-employed people is crucial.

In this article:

What is life insurance?

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

When an individual takes out a life insurance policy, they pay regular 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 that you need. This will depend on your financial obligations and the amount of debt you might have. From there, think about how much you can afford to pay in premiums, and how long you want your coverage to last.

Keep 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.

Term life insurance provides coverage for a specified period of time (the term), typically 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 policy’s term, the death benefit is paid to your beneficiaries tax-free, typically as a lump sum payment.

If you do not die during the policy term 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 purchasing a term length that lasts until your dependents are no longer, well, dependent. This might mean until your mortgage is paid off, or until you expect your children to graduate from college.

The term will then expire when you’re older, and your health might have declined.That’s one reason term life insurance is often more affordable — it usually covers a time where you’re relatively young and healthy.

Something else to consider: When you’re older, you might no longer have dependents (because your kids will have moved out and become thriving members of society). You also might not be earning an income, instead living off of your retirement savings. All of which is to say, you might no longer really need life insurance.

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

And again, this might also mean you’re buying coverage for a time when you’re no longer earning income that’s needed to pay expenses for your dependents. Each individual is different, of course, so it might make sense to talk to a financial advisor about the best fit for you.

What does life insurance cost?

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

Here is a sampling of quotes for a 20-year Haven Term life policy, issued by MassMutual or C.M. Life, for people in excellent health:

Term life insurance quotes

AgeCoverage
$250,000$500,000$750,000$1,000,000
25Male$12.09$18.73$24.97$30.54
Female$10.82$14.86$19.16$23.03
30Male$12.48$19.04$25.44$30.82
Female$10.87
$15.16$19.60$24.55
35Male$13.11$20.72$27.95$34.08
Female$11.86$17.50$23.13$29.03
40Male$17.33$28.42$39.50$49.15
Female$14.99$24.11$33.03$40.82
45Male$26.03$42.49$60.61$80.00
Female$21.03$36.45$51.55$66.57
Estimate based on pricing for eligible Haven Term applicants in excellent health. Pricing differences will vary based on ages, health status, coverage amount and term length. These prices do not reflect the rates for applicants in DE, FL, ND, NY and SD.

For comparison, a $500,000 permanent life insurance policy for that same 35-year-old woman in excellent health might 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 self-employed people?

As we’ve already noted, one of the tradeoffs of self-employment is that your income might vary from month to month. The good news is term life insurance premiums from Haven Life won’t — they’re level during the entire length of the term you select, which means they don’t change, even as you get older and potentially less healthy. That’s the kind of certainty a freelancer can count on.

Something else to think about: Many traditional employers offer group life insurance as a benefit. While this isn’t enough coverage for most families, it’s something. If you’re self-employed, you’re on your own.

We mentioned earlier that experts often recommend getting life insurance coverage worth 5 to 10 times your annual salary. How do you do that when your annual income varies? You can take the average of your last five years, or consider the trendline of your income. If you’ve been charging higher rates for your work, a) congrats; and b) factor that in when calculating how much life insurance you need.

Speaking of, Haven Life has an online life insurance calculator to help you ballpark the amount of coverage you should get.

Bottom line

Life insurance is a crucial consideration 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, some risks and challenges must be considered. By understanding the different types of life insurance and their coverage, self-employed individuals can decide on the best policy to meet their specific needs and goals.

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

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About Harrison Pierce

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Our editorial policy

Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our editorial policy

Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our content is created for educational purposes only. Haven Life does not endorse the companies, products, services or strategies discussed here, but we hope they can make your life a little less hard if they are a fit for your situation.

Haven Life is not authorized to give tax, legal or investment advice. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Individuals are encouraged to seed advice from their own tax or legal counsel.

Our disclosures

Haven Term is a Term Life Insurance Policy (DTC and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Haven Term Simplified is a Simplified Issue Term Life Insurance Policy (ICC19PCM-SI 0819 in certain states, including NC) issued by the C.M. Life Insurance Company, Enfield, CT 06082. Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in California is OK71922 and in Arkansas 100139527.

MassMutual is rated by A.M. Best Company as A++ (Superior; Top category of 15). The rating is as of Aril 1, 2020 and is subject to change. MassMutual has received different ratings from other rating agencies.

Haven Life Plus (Plus) is the marketing name for the Plus rider, which is included as part of the Haven Term policy and offers access to additional services and benefits at no cost or at a discount. The rider is not available in every state and is subject to change at any time. Neither Haven Life nor MassMutual are responsible for the provision of the benefits and services made accessible under the Plus Rider, which are provided by third party vendors (partners). For more information about Haven Life Plus, please visit: https://havenlife.com/plus

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