Key Takeaways
When you're self-employed, you may lose access to employer-sponsored life insurance and other group benefits. This coverage becomes your responsibility and may play a role in:
Protecting your loved ones after your death
Covering business liabilities
Potentially building cash value as part of a long-term financial strategy*
*Subject to policy type, terms, costs, fees, charges, and conditions. Cash value growth is not guaranteed.
About 10% of the U.S. working population is self-employed, totaling more than 16 million people, based on recent Bureau of Labor Statistics data.
Those who act as their own boss don't always receive the same benefits as employees at companies. From freelancers and gig workers to contractors, home-based professionals, and small business owners, they're responsible for securing their own insurance, which can be daunting. When you're the CEO, HR department, and IT person all at once, your safety net becomes your responsibility.
This guide introduces the benefits of life insurance for the self-employed, including death benefit protection and, for certain permanent policies, the potential to build cash value as part of a long-term financial strategy, subject to policy terms, fees, charges, and conditions.
Note: Permanent life insurance policies are subject to policy terms, fees, charges, caps, participation rates, spreads, and insurer crediting methods. Cash value growth is not guaranteed and may be affected by policy performance and costs. Life insurance is not a retirement plan, investment account, or bank product, and may not be suitable for all consumers.
How does life insurance work when you’re self-employed?
Whether you're starting your own business or simply transitioning away from a W-2 role, you may no longer have access to employer-supported life insurance when you're self-employed. Instead, self-employed life insurance is:
- Personally managed
- Portable
It stays with you, even if you change industries, forms of employment, or become externally employed, as long as the policy remains in force. Also, you can use self-employed life insurance to help support loved ones or cover business debt and expenses if you pass away, while certain permanent policies may also provide access to cash value during your lifetime, subject to policy terms, fees, charges, available cash value, and required premium payments.
Types of coverage options for the self-employed
During your lifetime and after your death, life insurance may play a role in providing you and your loved ones with financial protection. However, the type of life insurance you choose will affect the benefits, costs, risks, and limitations of the policy.
| Term life insurance | Permanent life insurance |
|---|
Duration | Fixed period, typically 10 to 30 years. | Lifelong (subject to on-time premium payments and the policy remaining in good standing) |
Coverage | Death benefit only | Death benefit and potential cash value (subject to policy terms, fees, charges, and required premium payments; cash value growth is not guaranteed) |
Benefit cost | Generally lower | Generally higher |
Premiums | Based on health, age, gender, and coverage amount | Based on health, age, gender, and policy type |
Cash value | Not applicable | May accumulate, subject to policy terms, costs, fees, and charges; growth is not guaranteed |
Death benefit | Paid out if the policyholder's death occurs within the term length | Paid out upon policyholder's death, subject to policy terms and standing |
Term life insurance for temporary protection
Term life insurance products provide coverage for a specific period (typically 10 to 30 years), offering temporary protection. This self-employed life insurance option may fit situations where you have a:
- Mortgage
- Business loan
- Dependent who relies on your income
A term policy may offer a straightforward, lower-cost way to help cover these obligations if something happens to you. However, these types of policies don't accumulate cash value, and they do expire. Plus, extending coverage after the initial term may result in additional fees or rate increases.
For many self-employed individuals, term coverage may be one option to review alongside permanent coverage, depending on budget, coverage needs, and long-term goals.
Permanent life insurance and cash value accumulation
Permanent life insurance policies provide a death benefit for your loved ones and may also include cash value features you can access during your lifetime. For self-employed individuals, indexed universal life (IUL) insurance may be relevant, depending on policy design, funding, costs, and risk tolerance.
IULs may allow policyholders to build cash value on a tax-advantaged basis under current law. Cash value growth is tied in part to the performance of a market index, subject to policy terms, caps, participation rates, spreads, fees, and charges. These policies may include a minimum crediting rate that protects against negative index crediting, but policy fees and charges can still reduce cash value.
The accumulated cash value may also be available through policy loans or withdrawals, although loans accrue interest and may reduce cash value and the death benefit. If a policy lapses or is surrendered with an outstanding loan, taxable income may result. However, results for IUL products vary based on policy design, funding, index performance, policy charges, and carrier crediting methods, and are not guaranteed.
Business-specific coverage for owners and partners
Beyond personal financial protection, some life insurance structures are specifically designed to address the continuity of a business, including:
- Key person insurance: A policy taken out on a critical individual, with the business as the beneficiary to fund after-death expenses like management transitions or hiring.
- Business continuation and buy-sell agreements: These may be supported by a death benefit, allowing surviving partners to buy out the deceased partner's share at a pre-agreed value, subject to applicable law, policy terms, and proper agreement structuring.
Tips for managing premiums with inconsistent income
Since self-employed income isn't always predictable, making fixed financial commitments may feel risky. Consider:
- Creating a flex fund where extra funds are deposited during high-income periods
- Budgeting based on minimum income and treating this as a baseline for mandatory expenses
- Prepaying premiums quarterly or annually when you can
- Opting for a policy with flexible premium options that can adjust with your current cash flow, subject to policy terms and required minimums
Financial security can depend on matching coverage to your cash flow. For self-employed insurance coverage, consider selecting a policy structure that keeps life insurance costs manageable even in your slower months and reduces the risk that your policy could lapse.
How to calculate how much coverage you actually need
Determining the right amount of life insurance when you're self-employed is more nuanced than a simple income-replacement formula. Your coverage needs may include both personal and business-related obligations, so consider these factors:
- Family support: The years of financial support your family would need to help maintain their current lifestyle.
- Business overhead: The coverage of your business's ongoing costs, including rent and payroll.
- Financial goals: Specific future expenses, like funding a child's education.
- Business-specific debts: Debts tied to your business that your family may inherit, like loans or liabilities.
- Cash value goals: The potential to build cash value as part of a broader financial strategy, subject to policy design, funding, fees, charges, and tax law.
After considering these factors, use Amplify's life insurance calculator to get an estimate of the coverage level that may fit your situation.
Is life insurance tax-deductible for the self-employed?
Whether self-employed life insurance is tax-deductible typically depends on your business structure, who owns the policy, who pays the premiums, and who benefits from the coverage. However, personal life insurance premiums are generally not tax-deductible for self-employed individuals. Certain business-owned policies may have different implications under current law.
Because treatment depends on individual circumstances, business structure, and current law, we recommend consulting a qualified professional for your tax planning.
Life insurance options for the self-employed
Life insurance providers differ in their product mix, underwriting process, digital experience, and support for non-traditional income earners. Below, we highlight several self-employed life insurance options for your consideration.
Note: These providers were selected based on product features relevant to self-employed applicants, digital accessibility, user experience, and coverage flexibility. This list is not a guarantee of quality, availability, pricing, or approval, and results will vary based on your individual health, income, state, underwriting results, and coverage needs.
1. Amplify
May fit: Cash value-focused permanent life insurance
Amplify is a digital-first life insurance platform that offers access to IUL insurance options. Its online application can help self-employed applicants, including those who may not have traditional W-2 documentation, explore coverage options and get an estimate quickly.
Its permanent coverage options may offer tax-advantaged cash value features to complement other planning tools, subject to policy terms, fees, charges, and current tax law. The platform is designed to guide you through the process without jargon or pressure. Coverage is subject to underwriting approval, policy terms, and applicable state requirements.
2. Ethos
May fit: Faster term coverage review
Compared with Amplify, Ethos focuses more heavily on term life insurance and offers a digital application process for those seeking term coverage. Many applicants may be able to get coverage without an in-person exam, subject to health questions, eligibility, underwriting requirements, and carrier guidelines.
3. Policygenius
May fit: Comparing carriers and providers
Policygenius is an online marketplace that allows you to compare premium estimates and policy features from multiple insurers. For self-employed individuals who want to shop around, this comparison-first approach may help clarify trade-offs without committing to a single carrier upfront. As with the other options, coverage terms, pricing, and availability vary by carrier and state.
4. Western & Southern
May fit: Complex coverage structures
Western & Southern Financial Group offers a broad range of life insurance products, including options that may support key person coverage or buy-sell agreement funding. This company's insurance professionals may be able to discuss complex coverage needs, making them a potential option for established business owners with multiple partners or employees. Western & Southern's products are subject to availability, underwriting, and applicable state regulations.
Protect yourself, your business, and your future
Life insurance for self-employed individuals isn't a one-size-fits-all decision. No matter your gig or industry, the right policy may help protect your family, preserve what you've built, and support long-term financial planning, subject to policy terms, fees, charges, and conditions.
Use Amplify's digital platform to get a personalized estimate and explore life insurance options that may fit non-traditional earners, subject to underwriting approval, policy terms, and state availability.
Frequently Asked Questions
Note
Important: This is life insurance advertising for general informational and educational purposes only and does not constitute financial, tax, legal, or investment advice. Life insurance is not an investment, bank product, or retirement plan. Life insurance policies contain fees, expenses, limitations, and exclusions, and policy features vary by carrier and state.
Life insurance is primarily designed to provide a death benefit. While permanent life insurance policies may accumulate cash value, they are not intended to replace traditional investment accounts, bank products, or retirement plans. Cash value growth is not guaranteed and depends on policy terms, fees, charges, insurer crediting practices, and, where applicable, index or investment performance.
Accessing cash value through loans or withdrawals will reduce policy values and death benefits and may increase the risk of lapse. Policy loans accrue interest. If a policy lapses or is surrendered with an outstanding loan balance, taxable income may result. Policies classified as modified endowment contracts (MECs) are subject to different tax treatment, including potential taxes and penalties on distributions.
Indexed universal life insurance (IUL) credits interest based on index performance, subject to caps, participation rates, spreads, and insurer crediting methods. While index-linked strategies typically include a minimum crediting rate, policy values can decline due to charges, loan activity, or insufficient premiums.
Variable universal life insurance (VUL) involves investment risk, including possible loss of principal. Investment returns and policy values are not guaranteed.
Tax treatment depends on individual circumstances and current law, which may change. Individuals should consult their own qualified financial, tax, and legal professionals before making decisions regarding life insurance.
