Should You Get Life Insurance as a Self-Employed Business Owner?

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Currently, nearly one-third of U.S. workers are self-employed, and 10.6% of Americans own or manage their own businesses. These hardworking entrepreneurs and freelancers typically don’t receive employer-sponsored life insurance. Subsequently, they must decide whether they should purchase policies on their own. 

While many do buy a health insurance policy, most self-employed business owners have to think twice about investing in one. After all, they already have to worry about paying employees, partners and the IRS, not to mention suppliers and vendors. Do they really need to shell out more cash for life insurance, too?

Ultimately, the answer will depend on your personal goals and values as a business owner. However, learning a bit more about your options and the potential benefits of purchasing a plan may help you make a more informed decision for you, your business and your family. 

Benefits of Having Life Insurance

Many business owners refrain from purchasing life insurance because they assume it’s too expensive. However, most people overestimate annual costs by 300% when, in reality, life insurance can be as low as $10 to $20 per month. Plus, buying a plan becomes a no-brainer for many self-employed professionals when you consider the many benefits. 

Income Replacement

As a mom, your kids depend on you for practically everything. If you were to pass away, your household would take a huge financial hit, especially if you’re the sole breadwinner. In this situation, you must either set aside a large sum of money to support them after you die or choose a life insurance plan that grants a death benefit to your beneficiaries. 

Once your family receives the payout, they can use it to keep your business afloat, pay bills or even send your kids to college. Death benefits aren’t subject to taxes, so your loved ones will receive the full lump sum in the unfortunate event of your passing. 

Debt Protection

Once you pass on, it’s up to your family and business partners to keep paying the company’s loans, rent, energy bills, suppliers and employees. However, without you there to generate income, paying off liabilities can be incredibly difficult, if not impossible. If you fully intend for your business to outlive you, you must purchase a good life insurance policy to support it after you’re gone. 

A life insurance policy can also help your family pay off personal debts, including mortgages, auto and student loans, and credit cards. However, they may also use the lump sum for collateral coverage. 

For instance, if you used personal assets like your home as collateral when you took out loans, the bank could foreclose on your family or repossess other assets if they don’t have enough money to make payments. 

Buying Out a Partner

At some point or another, you will exit the business. When you do, you may want your share of the company to go to either you or your family. 

However, you might also want your money to stay within the business to help it grow after you’re gone. In this case, it’s important to purchase a policy that will provide your partner with enough money — or part of it — to buy out your beneficiaries. 

While buy-sell agreements don’t need a funding element, leaving your partner with the option to keep the business up and running is a great way to support your company and your family at the same time. Of course, you won’t receive the death benefit if you leave the business voluntarily. However, you’ll still claim interest on your life insurance payments, which may help you fund your next professional endeavor. 

Purchasing a Policy

If you’ve decided that purchasing life insurance is a smart move, you must consider all personal and professional debts and expenses to choose a policy with the most comprehensive coverage. 

Do your research, shop around, get quotes, submit an application and take a free insurance medical exam. Wait for underwriting approval and, finally, sign your policy. Now you can rest assured that your business and family are taken care of in the event of your passing. 

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About the Author


  • Devin Partida covers technology, smart home, and app topics for ReHack.com, where she is also the Editor-in-Chief.

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