Some insurance policies continue even if your circumstances change, but life insurance is not necessarily one of them. Leaving your job to pursue self-employment usually means leaving your group life insurance policy too. While some choose to forgo life insurance when self-employed, it’s not recommended. Here are some of the reasons why:
People Count On You To Provide
An untimely death can be a major financial blow as well as an emotional one. Without life insurance, those who count on your income – from your family to your loan officer – could be left in a lurch. It’s important to keep the wheels turning at least temporarily so that those reliant on your income don’t go without. Life insurance can help to bridge the gap.
Your Debt Could Be Inherited
Not every entrepreneur takes on personal debt or connects their business to their real estate … but every entrepreneur that does, aims to pay it back or disconnect as soon as possible. Sometimes, accomplishing that separation takes time. Additionally, some companies accumulate debt as a cost of doing business. In either case, should you pass away before paying up, your family could be held responsible. A life insurance payout can help to resolve those obligations.
You Need A Successor
Keeping a business running after you die requires that either a family member take it over or someone is hired to run it. Giving family time to get up to speed or hiring a qualified individual sometimes takes a while, and always takes money. Proceeds from life insurance can help cover these unexpected costs.
Term Life vs. Permanent Life Insurance
There are a few types of life insurance available to people who are self-employed, including: term life insurance and permanent life insurance, or term and perm. To keep costs down, most self-employed people choose term, but there are clear advantages to perm as well.
Term Life Insurance
As the name implies, term life insurance lasts only for a specific period of time – typically 10, 20 or 30 years. Term life is far more affordable than permanent, but when the policy expires you have nothing to show for what you’ve paid into it. Plus, activating a new policy when you’re 10 to 30 years older may be more difficult and come at a higher cost, depending on your health, gender and career. For these reasons, term life tends to be the top choice of the younger set.
Permanent Life Insurance
In contrast to term life, permanent life insurance does not have an expiration date, meaning your rates are locked in for life; is more expensive; and comes with benefits during your lifetime – including the option to borrow against it. Once you have paid into the policy for some time, you will have accumulated enough cash value to take advantage of the opportunity to borrow from it either tax free or on a tax-deferred basis. Some will borrow from the policy from time to time as life and business events dictate; others strive to leave it untouched until necessary after retirement. The “loan” is repaid from the policy-holder’s death benefit after their passing, before funds are distributed to next of kin.
Life insurance is important for the self-employed, and fortunately there are options. Connect with us to explore which life insurance policy is right for you. We are here to support you!