Term Life Insurance for Self-Employed Workers: Coverage for Your Flexible Income

If you’re self-employed, you’ve taken the path less traveled and encountered many risks to build your business. But if you have a family depending on you, there are certain risks you shouldn’t gamble with — one of which is choosing adequate life insurance for self-employed individuals.

Whether you’re a small business owner, full-time freelancer or part of the gig economy, a term life insurance policy provides financial protection for your loved ones (and your business) without breaking the bank.

Here’s what you need to know about self-employed life insurance, including how to figure out how much coverage you need for your flexible income and where to find an affordable policy.

Why self-employed individuals need life insurance

Regardless of your profession, term life insurance should be an integral piece of your financial plan if you have a spouse, partner or children relying on your income. But self-employed people often overlook this important financial decision due to the perceived costs or simply underestimating the need for it.

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For a small monthly payment, term life insurance pays a set death benefit to your beneficiaries if you pass away during the policy term. This benefit can help cover everything from living expenses to paying off the mortgage to sending your kids to college. But it can also help with business-related debts and expenses that your family might otherwise not be able to afford in your absence.

Read: How to Pay Student Loans If You’re Self-Employed

A term life policy provides a hefty financial safety net that’ll allow your loved ones to navigate the many financial and business decisions that’ll result from your passing.

Term life insurance coverage needs for self-employed workers

As a general rule of thumb, we recommend buying term life coverage for at least 10 times your income. But determining this amount can be trickier for self-employed individuals considering many have an unpredictable income. Additionally, many freelancers and gig workers maintain a traditional job that can further complicate insurance planning.

When calculating how much term life coverage you need, look at what you earn on average from all sources of income. Once you’ve determined your total average salary, multiply this estimate by 10 and round up to the nearest $500,000.

Basic formula: Salary x 10 = Minimum Coverage (rounded up to nearest 500K) = Policy Amount

If you’re the breadwinner of your household — meaning your family relies on your self-employment income as their primary source of income —  then consider buying 10 to 15 times your income.

For example, let’s say you’re an online entrepreneur earning $100,000 annually. You’ll need at least $1 million in term life coverage to ensure your family is adequately covered. However, if you’re the breadwinner, a $1.5 million policy might make sense.

That might seem like a lot, especially if you’re accustomed to the limited coverage provided by a traditional employer. But let’s look at how much this level of coverage could cost you.

Term life insurance cost for self-employed and small business owners

Your term life insurance premium will depend primarily on your age, gender, health and death benefit. But your occupation and hobbies can also impact how much you’ll pay.

If you have a high-risk job or engage in high-risk activities in your spare time — like skydiving, mountain climbing or drag racing — it’s going to cost more for coverage. However, if you’re an online business owner, freelancer or have your own practice with low-risk hobbies, you’ll likely qualify for preferred rates since your job doesn’t pose much physical risk.

Let’s run some sample scenarios to give you a better understanding of how affordable term life insurance for self-employed individuals really is.

Here’s what a 20-year term policy with $1 million versus $1.5 million of coverage could cost for someone who is self-employed and in great health:

Policyholder profile	$1 million policy	$1.5 million policy
25-year-old female	$23 per month	$31 per month
25-year-old male	$30 per month	$42 per month
35-year-old female	$28 per month	$40 per month
35-year-old male	$33 per month	$46 per month

A healthy, self-employed 25- to 35-year-old can purchase $1 million to $1.5 million in term life coverage for about $20 to $50 per month.

Considering how relatively cheap term life is, you can choose to purchase additional coverage if you have outstanding business debts or want the added security and peace of mind for your family.

Get a free life insurance quote for your specific situation using the SLP Insurance quote tool.

Should part-time freelancers get term life coverage?

Let’s say you work a traditional 9-to-5 and spend your evening and weekends hustling to build your own business. Do you still need a private term life policy if you already have coverage through your employer? Yes, for multiple reasons.

For one, your group life policy with your employer likely has a very limited coverage amount.

Most employers limit coverage to one to two times your salary or have a set death benefit of $50,000. This simply isn’t enough to replace your traditional income, and it’s certainly not enough to also replace your side-hustle income on top of it. A supplemental policy can fill any financial gaps in your employer-sponsored policy.

Additionally, when it’s time to finally quit your office job, you’re going to lose your benefits package, including your life insurance coverage. By locking in your term life premiums now (at a younger age), you’ll avoid inflated monthly premiums years down the road.

Where to find the best term life insurance options for the self-employed

When it comes to buying term life insurance as a self-employed individual, don’t overcomplicate the task. As general guidance, a 20-year term that equates to 10 to 15 times your income (with all income sources included) should provide your family with adequate coverage. However, if you have significant business debts, especially loans that were secured with personal assets, consider increasing your coverage even more.

So, where can you find affordable rates for term life insurance for the self-employed?

If you’ve joined a professional association or union, you might have access to group life insurance options as part of your membership perks.

For example, if you own your dental practice, you might be able to purchase coverage through the American Dental Association. Whereas if you’re a freelancer or gig worker, an organization like the Freelancers Union offers term life coverage for members and their families. Spouses are eligible for up to 50% of the member’s coverage level and dependents can be insured for up to $4,000 per child.

However, these types of group life insurance policies aren’t always cheaper. For instance, a 30-year-old non-smoker female freelancer can purchase $1 million in term life coverage for $62.10 per month through the Freelancers Union. Compared with our earlier examples, that’s more than double what you could pay for an individual term life policy.

So, like with any other financial product, it’s best to shop around to ensure you’re getting the best policy at the most affordable rate.

To quickly compare over a dozen term life options, start the free quote process today.

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