Best Life Insurance for the Self-Employed
If you’re self-employed, applying for life insurance can be a unique process compared to those with traditional full-time jobs. As an independent contractor, freelancer, or gig worker, your fluctuating income and lack of employer-provided benefits make it crucial to select the right type of life insurance. Here’s how to determine your insurance needs and find the best policy for your situation.
Determining Your Insurance Needs
Insurance companies typically use your past year's earnings to determine how much life insurance you qualify for. Experts recommend coverage that is 10 to 15 times your income, but for self-employed individuals, this might not be sufficient. Given the nature of your work, you might need to consider additional coverage to secure your financial future and cover any outstanding debts such as car loans, mortgages, or student loans.
The DIME Method
A practical way to calculate how much life insurance you need is the DIME method, which considers:
- Debts: Total your current debts, including any loans specific to your line of work, such as a car loan for rideshare drivers.
- Income: Multiply your annual income by 10 to 15 times to ensure your family’s financial stability in your absence.
- Mortgage: Include the remaining amount on your mortgage. This ensures your family can pay off the home without financial strain.
- Education: Estimate the future educational expenses for your children. This could also include any other expected major expenses.
By considering these factors, you can get a comprehensive view of how much life insurance coverage you truly need.
Types of Life Insurance
For most self-employed individuals, term life insurance is the best option. Term life insurance offers substantial coverage at a lower cost compared to other types of insurance and provides financial protection for a specific period. This type of insurance is particularly suitable because:
- Cost-Effective: It provides more coverage for less money.
- Flexibility: You can reduce or cancel the policy if your coverage needs change.
- Simplicity: It’s straightforward, with a clear expiration date, aligning well with the fluctuating income of self-employed workers.
A healthy 35-year-old non-smoker can expect to pay around $29 per month for a 20-year term life insurance policy with a $500,000 death benefit. However, the cost can vary depending on factors such as age, health, and occupation risk level.
Shopping for Life Insurance
Here are the steps to follow when shopping for life insurance as a self-employed individual:
- Calculate Coverage Needs: Use the DIME method to determine how much coverage you need.
- Gather Documents: Collect proof of income, residency, identity, citizenship, and age.
- Compare Quotes: Shop around for quotes from multiple insurance companies to find the best rate.
- Complete Application: Fill out the application and complete a phone interview if required.
- Medical Exam: Undergo a medical examination if necessary.
- Review and Sign: Wait for the insurer's offer, review it, and then sign and pay for your policy.
Special Considerations for High-Risk Jobs
If your job involves high risk, such as mining or lumber working, expect to pay higher premiums. Insurance companies charge more for high-risk occupations due to the increased likelihood of a claim. It’s important to work with a knowledgeable insurance agent who can help you navigate these additional costs and find a policy that offers the necessary coverage within your budget.
Contact Us
Navigating life insurance as a self-employed individual can be complex, but you don’t have to do it alone. At The Lambert Agency, we specialize in helping freelancers, gig workers, and independent contractors find the best life insurance policies tailored to their unique needs. Contact us today to get started on securing your financial future and protecting your loved ones.