Why is Life Insurance Important for the Self-Employed?

Forbes Magazine reported in May 2020 that nearly 30 percent of Americans are self-employed, and that number is only growing. Self-employment offers many rewards, except that no one is there to offer you benefits or guidance on which ones you need. You are on your own to research and obtain benefits such as life insurance for the self-employed.

Life insurance is important for self-employed workers because it offers safety and protection for their business and family. Whether you own a business, work as an independent contractor, or offer your services on a freelance basis, you are eligible for a life insurance policy. You will just need to gather some documentation, such as proof of income over the past 12 months.

Why You Should Invest in Yourself

Life insurance is not as expensive as you might assume, and it offers financial protection for yourself, your loved ones, and your business. Reframing the way you think about life insurance as an investment in your family and the future helps to put its importance into perspective. If you currently receive life insurance through an employer but are considering becoming self-employed on a full-time basis, keep in mind that you will lose that benefit when you resign.

Do I Need Life Insurance? How Much Should I Get?

Anyone can benefit from life insurance, especially the self-employed who do not have corporate benefits to fall back on to protect their family. The general rule of thumb life insurance agents use is to take out a policy that is 5 to 10 times your annual salary. Since the income of people who work for themselves can vary considerably each year, follow these three steps to determine the amount of life insurance you need:

  • Add all liquid assets, including cash on hand and money in checking and savings accounts.
  • Calculate all expenses, including rent or mortgage, fixed monthly expenses, and debt. Next, consider your current age and how much income you would need to replace to support your family if you passed away. Be sure to include average funeral costs in this total.
  • Subtract liquid assets from debts to determine the minimum amount of life insurance you need.

If you have large variations in your monthly or annual income, purchase life insurance based on your highest year’s salary or your highest month’s salary multiplied by 12. This figure is your earnings potential, and it is best to insure your family for the highest salary you can earn.

What are the Benefits of Life Insurance for the Self-Employed?

The peace of mind and financial benefits you receive from life insurance far outweigh the monthly premium you pay for it. Some of these benefits include:

  • Knowing your dependants have financial support after your death
  • Ability to pay your own funeral and burial costs
  • Your family will have the funds to pay off debts, including a home mortgage and business debt
  • Provides finances for your business to continue operating without you

How to Purchase Life Insurance When You Are Self-Employed

Here is a step-by-step guide to walk you through the life insurance application process:

  • Gather required documents, such as proof of income, most recent tax return, social security card, and proof of residency
  • Obtain multiple quotes after determining how much life insurance you need
  • Take a medical exam and wait for approval by an underwriter
  • Sign your official policy and make your first payment

Arnold Insurance is Here to Help You Through the Process

Our friendly and knowledgeable insurance agents would be happy to answer your questions about different types of life insurance and help locate the right policy for you. With Arnold Insurance working for you, the entire process is as quick and stress-free as possible.


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