Life Insurance & Freelancers — What the Side Hustlers & Self-Employed Should Know

by Alfred Alonso | August 09, 2021

8 Minute Read

Freelancing is becoming a viable career for many Americans, but there’s a sacrifice involved with self-employment: there’s typically no benefits.

In fact, according to one LinkedIn survey, 92% of freelancers say their clients don’t provide any benefits at all. That means freelancers are on the hook not only for life insurance coverage, but also for healthcare, disability, and legal protection for their own business. 

Whether you’re considering a freelance career or are already knee-deep in self-employment (go you!), here’s what you need to know about life insurance coverage. 

What Does Life Insurance Do?

Families face a lot of uncertainty when a loved one passes away. In addition to grief, many have to deal with funeral costs, accumulated debt, property costs, and other expenses. According to the National Funeral Directions Association, a traditional funeral costs $8,755 and cremation costs $6,260. The average savings account balance for an American between 35 and 44 is $5,000. And that’s not taking into account any accumulated debt or expenses still left behind. 

A life insurance policy could offer the peace of mind that your loved ones will receive some financial benefits after you pass away. Your life insurance death benefits could help:

  • Replace your income
  • Pay medical bills, funeral or cremation costs, estate settlement fees, college fees, accumulated debt, or taxes. 
  • Provide an inheritance and cover associated taxes. 
  • Support the efforts of your favorite charity. 

By paying monthly premiums now, you could help provide some financial stability for your loved one’s future. 

The Best Types Of Life Insurance If You Are Self-Employed Workers

As you navigate the twists and turns of the self-employment path, there are two types of insurance policies you may want to consider: term and permanent.

​Term Life Insurance 

Term life insurance is the most common, mostly because it generally offers more affordable monthly premiums. If you pass away within your policy’s term (typically 10-30 years), your designated beneficiaries will receive death benefits tax-free. If the policy expires before you pass away, you can potentially renew coverage each year at an increasing rate. 

This type of life insurance is ideal if: 

  • You need life insurance for a short-term period of time (like during your career years). 
  • You have a limited budget and can only pay for lower rates.
  • You need a more flexible policy as your needs change. 

Permanent Life Insurance

Permanent life insurance offers coverage for your entire lifetime. It’s more expensive than term life, and it’s often tied to a cash value that can accumulate over time for additional savings. 

Though your beneficiaries will receive your death benefits, they will not receive the cash value (unless your policy provides that option… usually after paying a fee). Your savings can either be accessed by you during your lifetime (though it takes a while to accumulate) or it reverts back to the insurance company after you die. 

This type of insurance is ideal if:

  • You want your policy to last your entire lifetime. 
  • You want to build cash value (though if you want to accumulate money, it’s often better to save or invest it without paying associated premiums.) 

​Who Needs Life Insurance?

With all that’s on your plate, you’re probably wondering if you actually need life insurance. 

Life insurance might be worth looking into if: 

  • You want to provide some income replacement if you pass away. 
  • You have a home, and you’d like to help provide your loved ones with the means to pay the mortgage.
  • You want to prevent your loved ones from having to pay off your loans or other debt. 
  • You’re a small business owner who wants to help protect your business. 

You might not need life insurance if:

  • You’re debt free.
  • You have enough assets, income, and savings to take care of your family.
  • Your children are self-sufficient adults. 
  • You won’t owe estate taxes.

How Much Life Insurance Do You Need?

When determining how much life insurance you might actually need, really what you’re asking is: “If I died unexpectedly today, what would I like to financially cover?” 

A general rule of thumb is: 

Long-term financial responsibilities (mortgages, college costs, etc.) – assets = your life insurance needs. 

If you want to dive deeper into the numbers, check out our handy life insurance calculator

Other Personal Insurance Must-Haves 

Maintaining the health and well-being of yourself and your family is paramount. As a freelancer, you’re your own boss – and your own HR department. While you’re free of the all-seeing eye of your previous employer’s HR, you’re also without employee benefits.

That means it’s up to you to create a benefits package that takes care of you and your loved ones. Here are some personal insurance must-haves that can help protect you and those you care about.

Health Insurance

Health insurance is one of the best ways to prevent financial disaster following critical illness or some other medical emergency. Without it, emergencies can cost upwards of hundreds of thousands of dollars. Even if you’ve got that much cash stuffed under your mattress, chances are you can think of some better ways to spend it. Spa day, anyone?

Thankfully, you have some options:

  • COBRA extends the same health coverage from your employer for a specific length of time after a qualifying life event, such as quitting or termination. However, you may be responsible for paying up to 102% of the plan’s premium.
  • You may convert your existing group coverage into individual coverage if you qualify for a special enrollment period (like quitting your job).
  • You may purchase health insurance from the Health Insurance Marketplace or qualify for Medicaid.
  • Associations, networking groups, and unions, such as Freelancers Union, tend to offer healthcare insurance options to members at discounted rates.
  • You can also shop around for coverage from individual health insurance companies like Oscar.

Dental and Vision Insurance

There’s plenty of reasons to dread going to the dentist. If you’re uninsured, cost can be a reason to avoid making an appointment. When you factor in the added expense of uninsured vision care, you can end up spending a pretty penny over the course of a year — especially if you have children.

Luckily, dental plans cost a modest $350 per year on average. Premiums for vision insurance are similarly inexpensive, ranging from $91 to $588 per year, depending on individual or family coverage.

Disability Insurance

Approximately 90% of disabilities are the result of illnesses, not accidents. According to the Council for Disability Awareness, one in four of today’s 20-year-olds can expect to become disabled for at least a year before reaching retirement age.

How can you continue to make bill payments and stay financially healthy if you’re too injured or ill to work? Disability insurance pays out a percentage of your income for a period of time, reducing your financial stress while you focus on healing.

Business Insurance Must-Haves

In an increasingly digital age, there are more threats to businesses than ever before. Even if your freelancing gig is location-independent and safe from classic threats like fires and robberies, one wrong tweet can be the catalyst to a costly legal battle. Yikes!

Issues of liability and property loss or damage can ruin not only your business, but threaten your family’s financial well being. Insuring your business from threats and dangers helps protect your financial welfare.

Liability Insurance

Some insurance is designed to protect you from others’ goof-ups. Liability insurance protects you from yourself — whether your 3 a.m. Twitter rant gets you into legal trouble or the UPS driver trips on your steps and breaks his arm.

There are three types of liability insurance that any freelancer should consider: general, professional, and cyber.

  • General liability insurance protects against injuries and property damage that happen in the workplace. It also protects against trademark and copyright infringement, libel, and slander.
  • Professional liability insurance, or errors and omission insurance (E&O), protects freelancers from instances of neglect, inaccuracy, or missing deadlines.
  • Cyber liability insurance protects freelancers from financial and legal issues resulting from a data breach or hack.

You may not need each type of liability insurance, so don’t stress about breaking the bank. Still, put some thought into the ways your business is exposed and how best you can protect yourself from liability.

Property Insurance

Take a gander around your office or workspace and consider the equipment you use for your business. Chances are the tools and equipment required for your business to properly function are a little pricey.

The loss or destruction of such equipment can put a hole in your wallet, and business equipment isn’t always covered by a homeowners or renters policy. (The Lord of the Rings knick-knacks keeping guard over your keyboard tray, on the other hand, may be covered.)

Property insurance will protect your investment in business equipment and tools. Some insurers may even bundle general liability and property insurance together into a business owner’s policy, or BOP, saving you a few extra bucks than if you purchased each separately.

Rideshare or Commercial Auto Insurance

Your normal car insurance may not cover you if you’re driving for business. Whether you’re making frequent trips to meet clients or driving for a rideshare company, you may need a separate commercial auto insurance or rideshare insurance policy.

Getting Started With Life Insurance As A Self-Employed Freelancer Or Side Hustler

Life insurance might not be something you want to neglect. It can be a way to help provide for your family and loved ones if you’re no longer around to do so yourself.

Fortunately, with Bestow, you can apply and (if approved) purchase a life insurance policy in minutes, all without undergoing a medical exam. Get a free quote today and see how affordable a term life policy can be.