Becoming self-employed is a big career step! Use our tips to make sure you get the best coverage possible.
Now that more people than ever before are working from home, becoming a self-employed contractor has become a more popular career move for many. Many young entrepreneurs have decided it is better to go at it alone with their key career skill than to stick around at their old job. Not to mention, since job security has been so tenuous following the COVID-19 pandemic, starting your own business or freelancing can provide your family extra peace of mind.
Speaking of peace of mind—becoming self employed is one of the best times to take out a life insurance policy. You may want some coverage to replace the coverage you had with your old job or you may want to take out a policy that covers the costs of starting your own business. No matter the reason why you want to explore life insurance after becoming self-employed, know that you are on the right track to protecting your family.
To make sure that you are able to get the right type of coverage at the best price, we’ll be walking you through everything you need to know about getting life insurance while you’re self-employed. Let’s get started!
Which Type of Life Insurance Should I Purchase When I’m Self-Employed?
When taking out a life insurance policy, make sure you are buying enough to cover your family in the event of the unthinkable.
Learn about which type of life insurance is best for you and your loved ones.
Getting life insurance is not an exact science. There are lots of different types of insurance policies—like term life insurance or permanent life insurance—that suit different needs. To give you a better idea of the two main types of life insurance you will encounter, let’s take a moment to define them.
Term Life Insurance – Term life insurance is a type of insurance that lasts for a designated term. When you purchase a policy, you will set a policy amount and a duration. After the term has expired, your coverage will go away.
It is relatively easy to get an affordable term life insurance policy if you’re young and healthy. Since term life insurance eventually expires, the insurance company isn’t taking as high of a risk, which is why it is easy to get a cheap term life insurance policy. Usually, people will take out a term life insurance policy for the amount of time it will take to raise children or pay off debts. If you are self employed and looking for the cheapest life insurance option, term life insurance is likely your best bet.
Permanent Life Insurance – Permanent life insurance is a type of life insurance that never expires. When you purchase permanent life insurance coverage, you are guaranteed a payout from your policy amount as long as you pay the premium. Often, permanent life insurance is the expensive alternative to cheaper term life insurance. Permanent life does offer the benefit of an accumulated cash value over time. This cash value can be used during your lifetime to cover outstanding debts and health-related expenses like hospital bills or in-home care. Permanent life insurance is a great option for people who want their policy to accrue value, but it will be much more expensive than a term life insurance policy.
Now that we know about the two major types of life insurance you’ll likely encounter while shopping, let’s find out exactly how much coverage is needed for people who are self-employed.
How Much Coverage Do Self-Employed Workers Need?
If you haven’t previously purchased a life insurance policy, you may need more coverage than you expect.
Make sure you take into account all of your different revenue sources.
When you take out a life insurance policy, you need to make sure you are getting enough coverage for your loved ones in the event of your death. This is a difficult number to estimate since it is impossible to predict the future. That’s why we recommend you overestimate your policy amount rather than underestimate.
It is very possible that you had a life insurance policy through your previous employer. While getting any amount of life insurance is a positive step for your financial future, you will need to do more than replace the amount of coverage offered by your former employer. Often, the amount of life insurance offered by your employer will only cover your salary for one year.
When calculating the amount of life insurance you need, the first step you need to take is to multiply your yearly income by 10. This may be more difficult to calculate as a newly self-employed worker, but it is important that you make an accurate estimate. Otherwise, you could end up purchasing too much or too little coverage. If you have multiple sources of income—which is common among self-employed individuals—then you need to add up all of your sources of revenue to get an accurate yearly income number. Once you have estimated your yearly income, multiply it by 10 and you have your base number for coverage.
Then you want to add up any debts you have incurred during your lifetime or while starting your own business. Being an entrepreneur requires investment, so you want to make sure your loved ones are protected should you pass away before your business becomes profitable.
If you have incurred debts to start your business, then a cheap term life insurance policy is the way to go. The key is to make sure that the term associated with your policy is long enough for you to pay off your debts.
The last thing you need to do is add on any special expenses you envision for your future. Considerations like these include the cost of childcare, higher education, and elder care for aging parents. Once you add those costs to your total amount of coverage, you should have a good idea of the amount of coverage you need as someone who is self-employed.
How Much Do Life Insurance Policies Cost for Self-Employed Workers?
There are a lot of variables that will determine the amount of your monthly premium as an entrepreneur.
Find out how you can get the best possible price for life insurance.
If you are starting a business on your own and becoming self-employed, there is a good chance you are looking for a great deal on life insurance. In order to get the best deal possible on life insurance, you will need to shop around for different policy types from different companies. In general, the more research you do to compare different policies, the better price you will be able to get for your coverage amount.
As we previously mentioned, another strategy for getting the best price for insurance coverage is by searching for term life insurance policies over permanent life insurance options. Getting a cheap term life insurance premium is easy if you are young and without chronic illnesses.
It is also important for people who are self employed to make sure they have a policy that guarantees level premiums. If you’re working for yourself, you know better than most people that income is not always constant. To prevent unexpected changes in the cost of your monthly premium, you need to make sure your policy has level premiums. By guaranteeing level premiums, you can count on paying the same amount for coverage every single month. It is highly likely that you will encounter level premium policies as they make up the majority of term life policies.
Though getting life insurance as someone who is self-employed isn’t the easiest, it is ultimately always worth it. If you have the kind of motivation it takes to start your own business, you should have no problem at all securing a life insurance policy that works with your budget. If you have taken out loans to start your business or have any dependents, the best time to get life insurance is right now. Trust us, you’ll gain greater peace-of-mind that your loved ones are protected no matter what the future brings.
