Key takeaways
- Self-employed people don't get employer life insurance, and their income can be uneven, so a policy fills a bigger gap.
- Life insurance can pay off business debts and fund a buy-sell agreement so partners can buy out your share.
- Death benefits are generally not subject to federal income tax.
Self-employment offers freedom, control over your schedule and the chance to follow your passion. But many self-employed people overlook one important piece: life insurance.
Life insurance may matter even more for the self-employed than for people with traditional jobs. Here's why.
1. Income replacement
Replacing lost income is the main reason people buy life insurance, and for the self-employed the stakes are higher. Income often goes up and down, and if something happens to you, your family could lose your income and also face the work of winding down or selling the business.
Life insurance gives your loved ones financial breathing room at an already hard time.
2. Business debt coverage
Running a business often means taking on debt: a business loan, a line of credit or personal credit cards used to get started. Those debts don't disappear when an owner dies. Life insurance can cover them so they don't become your family's burden.
3. Protecting business partners
If you have partners, a sudden death can destabilize the business. A buy-sell agreement funded by life insurance lets the surviving partners buy out your share. The business transitions smoothly and your family is paid fairly.
4. Providing for your family's future
Beyond replacing income and paying debts, life insurance can fund your children's education or your spouse's retirement. Self-employed people don't have employer benefits like group life insurance or a company retirement plan, so a policy can be a big part of a long-term plan.
5. Estate planning and taxes
For many self-employed people, a legacy means passing down a business or other assets. Life insurance can help pay estate taxes so your heirs receive what you intended. Life insurance death benefits are generally not subject to federal income tax.
6. Peace of mind
Self-employment takes courage. It's a comfort to know that if something happens to you, your family and the business you've poured yourself into are protected.
The bottom line
Self-employment calls for a different kind of financial plan, and life insurance is a key part of it. If you've been on the fence, now is a good time to look again. A Keevia agent can compare policies and help you choose one that fits your business and family.
Frequently asked questions
What is a buy-sell agreement funded by life insurance?
An agreement between business partners that says what happens to an owner's share if they die. Each partner is insured, and the payout gives the surviving partners the money to buy the share at a fair price from the family.
This article is for general information, not financial, tax or legal advice. Costs and rules vary by state and provider. Coverage depends on the carrier, the plan and your eligibility.