Life Insurance for Self Employed Workers

According to the Bureau of Labor Statistics, there are roughly 10.2 million self-employed workers across the US. From freelancers to entrepreneurs, self employed workers are a pillar of the American workforce.

While being self employed comes with many benefits—from setting your own hours to working from home—it also means you must carry the weight of being your own HR department.

Traditional employees might get access to group life insurance policies or Death in Service benefits, low-cost policies that provide a basic level of coverage. When you’re self employed, however, you have zero default coverage. If you don't buy a private policy, you have no protection.

When it comes to life insurance for self employed workers, it’s no less important than insurance for traditional employees. Your family can be just as dependent on your income, and with the number of freelancers earning six figures quickly on the rise, you might even be the primary breadwinner in your household. With more and more Americans choosing entrepreneurship or the gig economy, personal life insurance policies have never been more important.

How does life insurance for self employed workers function?

Life insurance for self employed workers functions more or less the same as insurance for traditional employees with one exception: you must secure it independently. However, there are a few things to keep in mind:

• Proving your income - If you apply for high levels of coverage (think over $1 million), you might need to prove your income for the underwriting process. While traditional employees do this through a W-2 or pay stubs, as a self employed worker, you might need to have your tax returns on hand. Keep in mind that not every policy requires proof of income.
• Taxation - A common insurance myth is that premiums are tax deductible. Life insurance is considered a personal expense, and therefore cannot be deducted as business expenses.
• High-risk jobs - While most office workers get coverage quickly approved, high-risk jobs can add complexity. Be extremely honest about your work during the application. If you are a self-employed contractor who occasionally works on high-rise scaffolding, but you tell the insurer you are a "consultant," they can deny a claim if you die in a work-related accident.
• Terminal illness cover - Some term life insurance policies come with a rider that allows you to claim early if you are diagnosed with a terminal illness. This means you can get a payout to plan your own final days and sort your affairs. For the self-employed, this can be used to pay off business debts, cover medical bills, or fund a business succession plan while you are still able to oversee the transition. Look for Accelerated Death Benefits or Living Benefits for this option.

If you want to learn more about life insurance and how it works, check out our guide on term life insurance.

Once you select a life insurance provider—whether through your own independent research or through a broker—you can customize your policy to fit your needs and purchase your coverage.

The biggest question most self-employed workers ask is: What kind of life insurance do I actually need? In the US, you generally have two options:

Term life insurance

A more affordable option, term life insurance covers you for a specific period of time—usually 10 or 20 years. You might hear people refer to it as "pure life insurance" because it is pure protection with no additional investment component. It’s straightforward: you pay a premium, and if you pass away during that term, your beneficiaries get paid.

If you're primarily concerned with protecting your family while you have a mortgage or young kids, Term Life is almost always the most efficient choice.

• Best for: Most Americans, including freelancers and self employed workers
• Benefits: Provides affordable policies for the life stages when you most need coverage, such as while paying off a mortgage or raising dependant children
• Cost: A non-smoking 30-year-old can get significant coverage for around $20/month, but premiums can vary greatly depending on age, health, and policy payout

Permanent (Whole) Life Insurance

Whole life insurance combines an insurance policy with an investment component. A portion of your premium goes into a savings-like account that grows over time so your policy will have a “cash value” that grows over time.

One advantage of whole life insurance is that you can often borrow against the cash value at low interest rates, making it an alternative to bank loans. 

• Best for: High earners who want a tax-advantaged way to build wealth and don’t mind management fees, as well as any American who has already maxed out other retirement accounts and is looking for a tax-sheltered way to pass on wealth
• Benefits: Not only can you borrow against the cash component, but whole life coverage guarantees a payout to your beneficiaries, no matter what age you die
• Cost: Premiums can be quite high—often 5 to 10 times more the cost of term life insurance

In summary

Choosing term life or whole life insurance is a deeply personal choice that should align with your specific circumstances and needs. 

Check out the summary provided below and save the image if you need a quick guide to keep handy while making your decision.

Life insurance for self employed: how much is enough?

Freelancers and entrepreneurs have one advantage: they can customize their policies as much as they want. Employer-provided life insurance is often a group policy that provides a one-size-fits all cover, often 1x or 2x your salary.

To calculate your ideal cover amount, the DIME method reminds of all the main elements you must consider:

• Debts: Add up all your debts including credit cards, car payments, and loans (personal, business, or student)
• Income: How many years of income does your family need to stay afloat? If your income fluctuates (as it often does in the gig economy), look at your average earnings over the last three years to find your "baseline" income for these calculations
• Mortgage: Include the remaining balance you need to pay off your home
• Education: Factor in any college or university tuition costs for children

When deciding on your coverage, it’s essential to have a frank discussion with your beneficiaries. How many years of income do they need to stay stable? What other sources of income can they rely on if you’re no longer there?

Filling out your application

Rest assured that organizations offering personal term life insurance policies are used to working with self-employed workers. Personal policies are made to move with you through different jobs, homes, and life stages.

Remember that for high-coverage policies, you might need to prove your income through tax returns. If you think you might need a high level of cover, keep these documents handy when filling out your application.

Be clear and transparent about what your job entails. For the underwriting, it’s important that insurers have accurate information. Misrepresenting your job to make it seem less risky than it is might lead to lower premiums now but denied claims down the line.

Final thoughts

Life insurance isn't just about death—it's about the peace of mind that allows you to take the risks necessary to succeed in business. When you know your family and your legacy are secure, you can focus on what you do best: building your empire.