Life Insurance for Freelancers 101


Adam Cecil

Adam Cecil

Former Staff Writer

Adam Cecil is a former staff writer for Policygenius, a digital insurance brokerage trying to make sense of insurance for consumers. He is a podcast producer, writer, and video maker based in Brooklyn, NY.

Published July 2, 2015|4 min read

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There’s probably a bunch of reasons you decided to go freelance–more control over your schedule, extra income, more creative freedom–but one place freelancers can be at a disadvantage is insurance. Having insurance as a benefit at a large corporation can help hide the costs of it considerably.Some benefits, like life insurance, might be completely foreign to you. You’ve probably heard that life insurance is a great tool to help protect your family in case you die, but what’s its deal? You might have questions: Can I buy life insurance privately? How much is it going to cost me? Can I afford another monthly bill on variable income?Before the internet, you might call up a local agent to ask some questions, or live life on the edge and pray that nothing happens to you. Now, thanks to a series of interconnected tubes, not only can you work in your pajamas with nothing but a laptop and a WiFi connection, but you can shop for insurance that way, too.

What, exactly, does life insurance do?

Here’s a one-sentence summary: if you die unexpectedly, life insurance pays out a tax-free sum of money, called a death benefit, to the beneficiary of your choice.

Why would I want to buy it?

I'll give you three reasons:

  1. Family. Let’s say you have a spouse and some kids who rely on your income. If you die unexpectedly, your death benefit can replace your income for years and pay for future education costs for your children, plus pay off any outstanding debts, plus pay for your funeral costs.

  2. Co-signed loans. This doesn’t have to just be debt you share with a partner–maybe your parents co-signed your private student loan debt. Unfortunately, co-signed debt won’t die with you, leaving your co-signer with a huge bill. Life insurance can pay it off.

  3. Business partners. If you’ve incorporated, either by yourself or with partners, life insurance can protect the business from going under. You should’ve already discussed sudden death / end-of-life plans with your partners and lawyer, so if you’re buying life insurance, make sure everyone involved knows how it fits into the larger business plan.

Which type of life insurance should I be buying?

Term life insurance! Everything you know about life insurance is probably referring to term life.It’s called "term" life insurance because it lasts a set period of time (referred to as the term ). Usually, you get a policy that will last until those who are financially dependent on you, a.k.a. your kids, are no longer dependent. After that, you can get away with having a much smaller policy to cover end-of-life expenses, or no policy at all.Your other option is whole life insurance, which we do not recommend. Whole life insurance is a complicated and expensive product that mixes insurance with investments. While whole life insurance may sound appealing when certain salesmen describe it, it’s usually not a particularly good insurance product or investment for the average person.

Is it going to be super expensive because I’m buying it for myself (a.k.a. not a group employer plan)?

Nope! Term life insurance is remarkably affordable, especially if you’re buying it while you’re young and healthy and still know how to use technology. While I can’t tell you how much life insurance will cost you (we only just met), you can use our life insurance quoting engine to get an accurate quote in less than ten minutes.

Wait, I haven’t left my full-time job yet and I already have a life insurance policy through them. Can I keep it?

Maybe! Check with your HR department to see if your life insurance is portable. If it is, you can take it with you when you leave the company–you’ll just have to start paying for it directly. If it’s not portable, it might be convertible, which means you can convert it into an individual policy.Be aware that group employer plans sometimes don’t provide enough coverage. We suggest comparing it with the coverage calculator from our life insurance quoting engine to see if buying a new policy is the right choice.

-> Read more about keeping full-time benefits when you go freelance

All of these coverage calculators are telling me to calculate based on my income, but my income isn’t steady from month to month. How am I supposed to figure out my coverage?

Coverage calculators usually ask for your total annual income. Since freelancers have a variable income, it can be hard to figure out what number they put in there. Do you calculate based off the lowest month? The highest month? Or whatever is on your income tax return?There are two schools of thought when it comes to calculating annual income. The first is to just use whatever income you reported on your last annual income tax return. This is the easiest way quickly grab a number to represent your income.You can also take your highest income month and use that to calculate an annual income by multiplying it by twelve. Why the highest month? Since this life insurance policy is partially designed to replace your income for a decade or longer, we want to make sure it represents your highest capability as a freelancer.Our life insurance quoting tool lets you change your benefit amount on the fly, showing you in real-time how that will affect your monthly premium. That means you can calculate your annual income in a few different ways and use our quoting tool to find the term / death benefit combo that best fits your budget and needs.

What if I make it to retirement without dying? Doesn’t this mean I just spent the last few decades slowly flushing money down the toilet?

If you don’t use a term life insurance policy before it expires, it does just stop. No money back, no continued coverage. This may sound like a bum deal on the surface, but actually, you want this to happen. Remember, insurance is about protecting you against the worst possibilities. You don’t buy insurance because you want those things to happen, you buy it because you understand that, yes, in reality, things don’t always go according to plan.You should also check the coverage calculator regularly to see whether the coverage you have matches your need. If your need goes down, you can save money by switching to a smaller policy.So, no, it doesn’t mean you flushed money down the toilet. It means you spent money to protect your family and/or business. We think that’s a pretty good use for your cash.

What if I stop paying my premium?

Your coverage will stop.

Okay, that makes sense. What about taxes?

Because you pay the premiums with money that has already been taxed, the death benefit your beneficiary receives is completely tax-free. However, if that person decides to invest the money or otherwise perform activities which are usually taxed, normal taxes will apply.

I have so many more questions about life insurance in general!

Well, we have good news for you! We have a life insurance guide chock full of great advice, answers, and more.

Adam Cecil

Former Staff Writer

Adam Cecil is a former staff writer for Policygenius, a digital insurance brokerage trying to make sense of insurance for consumers. He is a podcast producer, writer, and video maker based in Brooklyn, NY.