How to Buy Life Insurance as a Freelancer

Is life insurance something you’ve been considering? Here’s what you should know about buying a policy as a freelancer.

By Leanna Lee • Dec 15, 2021

Financial stability is on everyone’s mind right now. And since freelancing doesn’t come with a benefits package, it makes sense to consider all your options. Life insurance helps support your family financially if something happens to you, protection that can be an added bonus when you’re your own boss.

What exactly is life insurance and how does it work?

Life insurance is a legal contract between you and your provider. You promise to pay a regular premium in return for a guaranteed, tax-free cash payout or “death benefit.” If you die while your policy is active, that payment goes to your family to help them pay bills, debts, or save for the future.

Life insurance can be a great option for freelancers because it replaces your income if something happens to you.

Sadly, life insurance premiums aren’t tax-deductible for most freelancers. The IRS doesn’t consider life insurance premiums a necessary business expense, especially if you aren’t incorporated. In general, you can only write them off if you are paying for worker’s benefits or protecting business assets.

Types of Insurance

There are two main types of life insurance: term life and permanent.

Term Life

Term life keeps you covered for a set period of time, usually from 5 to 30 years. You choose the length and amount of coverage that works best for you and pay a monthly or yearly premium for the length of your policy term. Once it runs out, you can often renew your policy for a higher rate or convert it to a different one.

Because it’s flexible and technically temporary, term life tends to be the most affordable insurance option.

Permanent Life

Like the name suggests, permanent insurance lasts a lifetime, as long as you pay your premiums. It also has another benefit: cash value. With cash value, a small percentage of your premium is put in a separate account to grow and earn interest over time. You can withdraw it to use as income, as collateral for a loan, similar to a line of credit. But you do have to pay it back with interest if you want to keep the policy.

Permanent insurance plans are usually more expensive than term life ones, but the perks can outweigh the costs.

Other types of insurance include:

  • Final expense. This smaller plan is designed to help you cover end-of-life costs like funeral expenses or medical bills.
  • Accidental death benefit. With this plan, your insurance will pay out a death benefit to your beneficiary if you die in an accident.

A lot of people ask, “why buy life insurance if I can just save?” And it depends. Savings are crucial in a crisis and having life insurance shouldn’t stop you from building an emergency fund. But can that fund support your family if something were to happen to you? It all comes down to your unique needs and situation.

The Application Process

When you apply for a policy, companies will look at your age, situation, financial needs, and health to see how risky it would be to insure you. If you’re young and healthy, you’re more likely to get covered and pay lower rates.

Providers will ask about your height and weight, whether you smoke, drink, or take drugs, any medical issues, and your family’s health history. They’ll also check public databases for previous insurance policies, your driving record, and other information.

With term and permanent plans, you usually have to take a medical exam as part of your application. Medical exams are meant to confirm the health information you gave when you applied and check to see if you have any other current or potential health issues.

Once the life insurance company has everything they need, they’ll let you know if they can cover you and offer you a policy rate. If you are a smoker or have health issues, you may end up paying more for coverage. But in the end, it really depends on your overall health and current lifestyle choices.

And if you’re concerned about your health affecting your rate, there are still options. Some life insurance policies like simplified and guaranteed issue insurance don’t require an exam and in most cases, won’t reject you for health reasons.

How To Get Started

Begin by figuring out your financial situation. You’ll want to add up all your income, daily expenses, assets like savings or investments, and debts to get the full picture. Keep in mind how many people are dependent on your income, like your partner, kids, or elderly parents.

The difference between your costs and any assets you have will tell you how much coverage you need. According to CNN Money, a good rule of thumb for life insurance coverage is 7-10x your yearly income.

If your exact income is a little hard to pin down, try averaging the numbers from your last couple tax returns. Or take your best freelancing year so far and use that as a model. Here’s a life insurance calculator from NerdWallet to help you figure it out.

Once you have a handle on your finances and know the type of coverage you’re looking for, you can start shopping around for a policy. But you won’t need to go far.

Freelancer’s Union doesn’t just offer deals on health insurance, they’ve also partnered with Guardian to offer a term life plan. It comes with a handy rate sheet, so you’ll always know what you’re spending. Want a permanent policy instead? Here’s a roundup of the best life insurance companies of 2021 from PolicyGenius.

Even if it’s not tax-deductible, life insurance could be a good addition to your freelance benefit arsenal, especially after a year like 2020.

Written by
Leanna Lee

Leanna is a content writer and journalist focusing on the future of work, tech, and mental health. She also co-hosts a mental health podcast for small businesses. Learn more about her and her work on her website.

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