Is Life Insurance Important for Self-Employed Individuals? Find out

Who are self-employed people?

An independent contractor or sole proprietor who reports self-employment income is
considered self-employed.

Rather than working for an employer, self-employed people work for themselves in various trades, professions, and occupations.

Working for yourself may appear to be an ideal career path. You have the freedom to grow your own business the way you want without being constrained by the constraints imposed by a boss.

However, it also means that you will not have the safety net of benefits typically provided with a traditional job, such as life insurance.

People rely on you and your company. Life insurance can either keep it in the
family or replace your income if the company can't function without you.


Anyone who works for themselves faces risks, both professionally and financially. Every day, your name and bank account are put on the line. But have you considered that others are out on that limb with you every day?

It could be the banker who gave you the loan to get your business started, the company you're paying for all of the technology or tools you use, or the most vulnerable people — your family.

If you work for yourself, you must carefully consider your vehicle insurance, property and casualty insurance, and health insurance if your spouse does not have it through their employer.

You purchased this insurance to limit the financial impact if something unexpected happened to you, such as a car accident you caused, storm damage to your office/home office, or an appendix that burst,
necessitating emergency surgery.

What about life insurance, though? You're
still young and healthy, you don't have time to be sick, and your car insurance
includes medical coverage. Can't it just be put off for a few more years?

 

Here are a few business reasons why you should have life insurance:

• You want your company to survive without you.
  
  
• You have business debt or real estate that you don't want your family to be responsible
  for.
  
  
• You need to fund a buy-sell agreement to help someone buy your business, perhaps a
  beneficiary or a partner.

Here are some personal reasons why you should have life insurance:

• You have business loans secured by personal assets, such as your home, and you don't
  want your family to lose them.
  
  
• Because they are ill-equipped to run the business, your family will be forced to sell it
  quickly.
  
  
• Support your family while they learn the business because they understand how important it is to you.

While you can't put a price on freedom, not having adequate insurance coverage may cost
your family more than you anticipated. 

Your family's financial future is dependent on your planning, and life insurance is the best way to protect and provide for your loved ones after you die.

What types of insurance should you consider:

Several types of insurance are relevant to self-employed individuals. There is some overlap between them. You can also get packages that include several different types of insurance.

The first consideration is the various types of self-employed life insurance. You can get either whole life insurance or term life insurance. There are also illness-related insurances available to self-employed people. Critical/serious illness insurance provides you with a monthly income while recovering. 

It also contributes to the payment of private medical bills. Income protection insurance is another option. You will be paid every month if you cannot work due to an injury or illness.

Self-employed individuals should also consider liability insurance, a legal requirement in
some trades. Liability insurance will cover your legal fees if someone decides to sue you.

Is life insurance tax deductible for self-employed people?

Life insurance is regarded as a personal expense by Her Majesty's Revenue and Customs. So, if you buy life insurance for yourself (so that your family will be compensated if you die), this is not a business expense. 

Travel, equipment, and electricity bills are examples of tax-deductible business expenses. They are for the money spent on doing business. It is not strictly necessary to have
life insurance to conduct business. As a result, it's not deductible.

There are a few scenarios in which it may be tax-deductible. A 'key person' policy is one
example. 

If you are an irreplaceable employee at a company, the company will suffer a financial loss if you die. 

Because of key-person policies, your business partners may be able to seek compensation for lost earnings. This type of insurance is tax-deductible.