You may be thinking that life insurance is for a regular working guy, right? Wait, wait. Although it might feel like something you’re required to do or even a drag when you’re in business for yourself or freelance, life insurance is not something you have to rule out, no matter how successful your business looks. Here’s the twist: life insurance is just as applicable to you as it would be to any other individual with a 9-to-5. Without life insurance, your family might be badly off financially if something were to happen.
Life Insurance Basics: What’s It All About?
Life insurance, in simple terms, is an agreement between you and an insurance company. You pay a yearly or monthly premium, and the insurance company, in return, promises to send money to your heirs (such as loved ones) if you die. This financial assistance can be a godsend, assisting in replacing lost income, paying off debts, or even covering funeral expenses. But here’s the rub: as a self-employed person, you’ve got a lot more to think about than someone with a regular paycheck.
Different Types of Life Insurance
Term Life Insurance
Term life is exactly that—simple and straightforward—and it’s also usually cheaper. You pay for cover for a specified time—say 10, 20, or 30 years—and, if you die within that time, the policy pays out. But if you survive longer than the term, you receive nothing back. It’s ideal for the self-employed who require cover for a specified amount of time when they are most vulnerable, say, if you’re paying off a mortgage or financing a business.
Whole Life Insurance
Whole life costs a whole lot, a lot more, but it does have some benefit. You’re insured for the rest of your life, and some of the money that you invest in it builds up as a cash value over time. That way, you can use the cash value to borrow against, or even get your money back if you need to, by canceling out the policy. But, for a self-employed person, it can be a big financial commitment, and it’s probably not needed if you’re just starting your business.
Universal Life Insurance
Universal life is similar to whole life, but with a little flexibility. You can adjust how much money you pay based on your budget. It also accumulates cash value, but you have more say over how it’s invested. This would be good if you require a more flexible policy that will grow with your business.
Why Should Self-Employed Individuals Buy Life Insurance?
Being self-employed gives you the freedom to work your own schedule. But with that, there is no employer who is going to provide you with things such as life insurance, health insurance, or retirement. Most self-employed individuals think that they don’t need life insurance because they are healthy, active, and business is great. The thing is, life doesn’t always pan out, and even with a good business right now, that can all change in seconds.
Consider the following: If you have dependents (spouse, kids, elderly parents), they will need your earnings to live. Without life insurance, your untimely death might leave them in a financial crisis. You may be able to take care of yourself today, but who is going to take care of your family members when you are not around?
Determining Your Coverage: How Much Life Insurance Do You Need?
How much life insurance will you require? It’s based on a number of factors. Here’s a rough approximation just to give you a feeling of it:
- Income Replacement: How much would your family want to replace your income for a period of time? Experts suggest 10 to 12 times your yearly income.
- Debt and Mortgage: Do you carry business loans or a mortgage? Ensure that you include these so your family will not be burdened with your debt.
- Education Expenses: If you have children and intend to put them through college, you will want to include tuition and living expenses.
- Business Requirements: If you have a business that you wish to continue operating, you may require some additional protection to assist with operating expenses or succession.
- End-of-Life Expenses: Funerals are expensive, and you wouldn’t want your family worrying about paying for it at a very trying time.
After you’ve added those up, you can then make an educated decision as to how much insurance you should carry.
Do You Need to Buy Life Insurance if You’re Self-Employed?
One of the downsides of being self-employed is that you do not have a fixed income. Should your business be thriving, you may believe, “I’m too successful to worry about life insurance at this point.” The truth, however, is that it’s precisely because you’re self-employed that you need to consider life insurance sooner instead of later. Here’s why:
- No Employer Benefits: Because you don’t have an employer, it is up to you to provide your own economic safety net.
- Irregular Income: Your income can vary in the year, and premiums even of life insurance can be determined based on income at some time.
- Business Debts: If you have business loans or business debt regarding business, your family may have to pay them in case of your sudden death.
- Family Dependents: If you have a family, they are hardly able to sustain the lifestyle without your income. That adjustment can be made easily by life insurance.
Other Problems for the Self-Employed
Self-employed individuals have unique concerns that others do not, such as variable income and multiple streams of revenue. What that implies is that the kind of policy you might want to consider is slightly different from someone with a traditional job. Let’s dissect what you will need to consider when selecting life insurance.
1. Income Variability
Self-employed people usually have unconventional income streams, where in one month there will be ample money coming in, and the next month there will not be. When shopping for life insurance, you would want to get one that accommodates your unconventional finances. Some companies will give flexible premium payments, where you can delay payment if you are short of money in a given month. This flexibility will be what allows you to maintain your coverage, regardless of your finances.
2. Business Continuity
If you have a business, some of your life insurance requirements may be to safeguard your business if it loses its financial footing if your were to pass away. It may be in the form of policies such as a key person life insurance policy, where your business is required to cover hiring someone to take your place or covering debts if you do not exist anymore.
3. Long-Term Planning
As your own boss, you likely spend a great deal of time thinking about the future and want to see that your business, savings, and loved ones are well provided for. Life insurance can accompany a long-range financial plan. Consider it as part of your retirement plan: some plans contain cash value that you can use for other purposes down the line.
What If You Don’t Buy Life Insurance?
The demise of life insurance as a stand-alone contractor would be disastrous for your loved ones. They would not be able to meet the needs of day-to-day expenses, housing, education, or healthcare expenses upon your death. Your company, too, could be jeopardized without the life insurance protection, particularly if you have employees or significant business obligations. In plain words, life insurance is a must-have safety net.
Conclusion: The Necessity of Forward Planning
Life insurance is a critical component of future planning, particularly when you’re an entrepreneur. It’s simple to imagine that you’re untouchable or unshakeable, or that you can get life insurance later in life, but the sooner you do it, the better it will be for your business and the people who love you in ways you won’t even know until it’s too late. Act now, and let your legacy be one of financial freedom, not doubt.
The requirement for self-employed individuals to have life insurance is not always taken into consideration, but it is as important as it is for any other employee. Proper planning can help you ensure that you’re covering your loved ones, business, and assets. Life is full of surprises and can be unpredictable in more ways than one, so planning ahead with the right type of insurance is imperative in protecting what you’ve worked so hard for.
InsureDirect.com
Corporate Home Office
618 South Broad Street
Lansdale, Pennsylvania 19446
Email: contact@insuredirect.com
Phone: (800) 807-0762 ext. 602
Keep your home safe and secure with complete protection from InsureDirect—because your home deserves nothing less than the best.