Life insurance for freelancers and self-employed workers

Life insurance is a financial safety net that offers security and support to individuals and their families. In the event of the policyholder's death, it provides a lump sum payment to beneficiaries, helping cover expenses like funeral costs, debts, and ongoing living expenses. It's an important component of responsible financial planning, offering peace of mind and stability if the unimaginable occurs. 

Life insurance in the rapidly growing gig economy

The landscape of work is rapidly changing, with freelancing, and the gig economy gaining popularity. With the rising cost of living, many full-time employees are joining what’s known as the ‘gig economy,’ picking up side hustles like freelance copywriting, freelance graphic design, digital marketing and more. In fact, a recent study by HR Report Canada found that around 8.75 million Canadian adults have taken on jobs in the gig economy.

Freelancing and self-employment have many benefits, but they also pose challenges in areas like extended health benefits and life insurance. Unlike traditional employment, freelancers and self-employed individuals often lack access to employer-sponsored life insurance plans, unless they are offered through their spouse’s employer. 

Because of this, many freelancers are left to navigate the complexities of securing life insurance independently, facing unique challenges like variable income streams and fluctuating expenses.

The importance of life insurance for self-employed workers

Life insurance plays a vital role in the financial security of self-employed individuals, including freelancers. Beyond providing a safety net for their loved ones in the event of their passing, life insurance serves as a crucial tool for safeguarding their businesses and securing their financial future. 

For self-employed workers, having life insurance means ensuring their family members are adequately supported financially if they're no longer able to provide. 

Freelance life insurance also offers self-employed individuals an avenue for long-term financial planning, including retirement preparation. By investing in a life insurance policy tailored to their needs, freelancers and self-employed workers can build a foundation for their retirement savings while protecting their loved ones at the same time.

Types of life insurance for self-employed workers

For freelancers and self-employed workers, there are a few different types of life insurance to consider: term, whole, and universal life insurance.

Term life insurance is like renting coverage for a set period, usually 10, 20, or 30 years. It's straightforward and usually cheaper, making it a good choice for temporary needs like paying off a mortgage or covering your kids' college tuition if something happens to you. 

Whole life insurance lasts your whole life, as long as you keep paying the premiums. It builds cash value over time, which you can borrow against or use to help pay your premiums later on. This type of insurance offers lifelong protection and a way to save money at the same time. 

Lastly, universal life insurance is flexible, allowing you to adjust your premiums and coverage as your needs change. Like whole life insurance, universal life insurance builds cash value, but it also offers the freedom to decide where your money gets invested, like in stocks or bonds, depending on how much risk you're okay with. 

Certain policies also guarantee a minimum interest rate, while others give you the option to invest in index and variable funds. The main benefit of universal life insurance is its flexibility, giving self-employed workers control over their coverage and payments.

Unique life insurance considerations for self-employed workers

Self-employed workers face unique considerations when it comes to life insurance for the self-employed. One key factor is the fluctuating nature of their income. Unlike employees with steady paycheques, freelancers and self-employed individuals often experience irregular earnings, making it challenging to budget for insurance premiums. This is why it’s so important for self-employed workers to choose a life insurance policy with flexible payment options that accommodate their varying income streams. Additionally, they should consider policies that offer the ability to adjust coverage levels as their financial situation evolves.

Another important consideration for self-employed individuals is the need to protect their business assets and continuity. If your business is carrying debts at the time of your passing, this could jeopardize its ability to continue operations. Choosing life insurance that covers business debts is something all self-employed workers should consider. 

How much life insurance do freelancers need?

While there is no magic formula to determine how much freelance insurance self-employed workers need, there are many factors to consider that can inform this decision. 

The first step for freelancers to take is to analyze their financial obligations and responsibilities. Freelancers should calculate their outstanding debts, such as mortgages, student loans, and credit card balances, to ensure their life insurance coverage is sufficient to cover these liabilities. 

Next, freelancers should consider their long-term financial goals when determining their life insurance needs. This includes planning for future expenses such as college tuition for children or retirement savings. 

By assessing their financial objectives and anticipated future expenses, freelancers can better estimate the amount of life insurance coverage required to protect their loved ones and achieve their financial goals. 

Consulting with a financial advisor can also provide valuable insight and guidance in determining the right level of coverage for freelancers and the self-employed.

Other insurance products for self-employed workers to consider

Self-employed workers have a range of insurance options to consider beyond just life insurance. One important product is critical illness insurance, which provides a lump sum payment if the policyholder is diagnosed with a serious illness like cancer or heart disease. This money can help cover medical expenses and other costs during a challenging time. 

Disability insurance is also important for self-employed individuals, as it provides income protection if they become unable to work due to illness or injury. This ensures they can still support themselves and their families even if they're unable to work temporarily or permanently.

It’s also important to remember extended health benefits, which are essential for self-employed workers to maintain their well-being. While traditional employees often receive health insurance through their employers, freelancers and self-employed individuals need to find coverage on their own. This can include individual health insurance plans or joining a group health insurance program through a professional association. Having health benefits ensures self-employed workers have access to necessary medical care without facing the financial strain of paying out-of-pocket. 

Lastly, business insurance is another consideration for self-employed individuals, as it protects their business assets and operations from risks like property damage, liability claims, and lawsuits. 

By carefully considering these insurance products, self-employed workers can safeguard their health, income, and businesses against unexpected challenges.

The bottom line

Life insurance is a critical tool for freelancers and self-employed workers to protect themselves and their families financially. By understanding their unique needs and exploring various insurance options, including critical illness, disability, and health benefits, self-employed individuals can ensure they have comprehensive coverage for life's uncertainties. Additionally, considering business insurance can safeguard their livelihood and assets. 

Also read: 

• Your guide to life insurance in Canada
• Types of life insurance in Canada
• How much life insurance do I need?
• How to use life insurance for tax and estate planning