5 things freelancers need to know about life insurance

Jeanine Skowronski

Published May 14, 2018|2 min read

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Freelancers have a ton of autonomy. They set their schedules. They pick their clients, their work place — and dress code (hello, PJs!). But they're also on their own when it comes to financial protection. Here are five things freelancers need to know about life insurance.

1. Term life insurance should suffice

There are two main types of life insurance: Term life covers you for a set period of time, while permanent life insurance lasts your whole life. Most freelancers — and, in fact, people in general — are best-served by term life insurance, which is much more affordable than its mainstream permanent counterpart, whole life insurance. For more on term vs. whole life insurance, go here.

2. There are a few ways to calculate how much life insurance you need

Life insurance replaces a breadwinner's income, should they pass away while the policy is in effect. That way, their family can still pay the bills. Freelancers don't work on a steady income, so figuring out how much coverage you need is sometimes a challenge.

At the end of the day, you have two big options. You can go off of the income reported on your last tax return, which is most effective if you've been self-employed for a few years. Alternately, you can also take your highest income month and and multiply it by twelve. That way, you're covering your maximum earning potential. Our life insurance calculator can help you run through different scenarios.

3. Your business debts can affect how much coverage you need

Most people account for income replacement, end-of-life expenses, personal debts (like the car loan or mortgage), future college expenses and a financial cushion when deciding how much life insurance they need. All those factors apply to freelancers, but if you're a sole proprietor with business debt, make sure you get coverage to pay those liabilities. Otherwise, they can affect the size of your estate — and your loved ones' inheritance.

4. Salaried employees need private life insurance, too

Don't regret your choice to go freelance on life insurance's account. The truth is, people who get group coverage through work almost always need to shop for a private policy. Employer-sponsored plans generally provide a low amount of coverage. Plus, salaried employees usually can't take that policy with them if and when they switch jobs.

We say "usually" as sometimes exiting staff can convert group life insurance to an individual policy. However, if you're just now striking out on your own and your soon-to-be former employee is giving you this option ...

5. It's still smart to shop around

When you convert a group policy to an individual policy, you agree to shoulder the full cost of its premiums. But, unless you're older or in poor health, you can most likely find a similar policy for less — or an affordable policy with the right amount of coverage — in the marketplace. In other words, it pays to shop around. (We can help you compare life insurance quotes across companies here.)

Need help getting other important coverages, like health or disability insurance? Here's how to set up your own benefits package.

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