Life insurance is not a throwaway bonus

Concept of work from home and home family education. Mom and son are sitting at the desk. Business woman works on the Internet in a laptop, a child writes in a notebook.
Ilona Titova / Shutterstock

Today, even some small businesses offer free or low-cost life insurance to their workers. These group policies can be a great bonus but they usually lapse as soon as you leave.

And if you do get the chance to convert your coverage to an individual policy, the new cost of that protection may not look so appealing.

That’s why it’s common to see people skip from one subsidized life insurance policy to the next as they move from job to job.

Once you start working for yourself, that’s no longer an option — and many people don’t bother to find a new one. After all, no one likes to think about death in the first place.

But freelancers have partners, children and aging parents just like everyone else. If anyone in your life is relying on your income, you still need a plan to pay the mortgage, cover college tuition and put food on the table if something were to happen to you.

And if, like many freelancers, your cash flow tends to fluctuate, you may have an even greater need for a strong financial cushion.

Why now is the time to buy your own policy

Afro-American millennial man in trench coat, red hat wearing face mask
DimaBerlin / Shutterstock

Americans have been rushing to buy life insurance policies during the pandemic, and for good reason.

While adult mortality rates are expected to be high for a while — potentially up 15% this year — life insurance prices remain stable for now, according to recent figures from the site Policygenius.

As a result, insurers are experiencing the biggest surge in sales since 1983.

“Nearly a third of consumers [surveyed] said they were more likely to purchase coverage due the pandemic,” says David Levenson, CEO of the leading financial services research firm LIMRA, in a release.

“This is so important because too many Americans live with a life insurance coverage gap, leaving their loved ones’ financial security at risk.”

Even if you’re not worried about the pandemic, the best time to buy life insurance is always now. You can lock in much cheaper premiums if you act while you’re young and healthy.

How to shop for life insurance as a freelancer

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Lucky Business / Shutterstock

Shopping around for life insurance is easier than you might think, but you have a few important decisions to make.

Choose between term and permanent policies

  • Term Life Insurance. These policies last only as long as you need them. For example, you might buy a 20-year policy that will protect your family until the house is paid off and the kids graduate from college.

  • Permanent life insurance. These policies are more expensive — often 10 times as expensive — because they last your entire life and are thus guaranteed to pay out eventually. Some of them also build a “cash value” that you can borrow against for major purchases.

The choice is yours, though a term life insurance policy will be a much more affordable option for freelancers whose income and bank balance dip from time to time.

Decide how much coverage you need

This is one area where you should improve on your old policy, if you had one.

Free or cheap company-provided plans pay out one or two times an employee’s salary — a nice bonus but nowhere near enough for a typical family. That's why most employees should look into buying their own policies, too.

A common rule of thumb is to multiply your annual salary by 10, but that can be tricky when your income changes from year to year. You could try averaging a few years' earnings or base your calculations off a good month. Or you can always ask an insurer for help.

When budgeting, keep in mind that unlike your health insurance, life insurance premiums aren’t tax deductible.

Shop around for the best rate

The point of buying life insurance is to provide financial security for your family, so make sure you're not spending more than you have to.

The Insurance Information Institute recommends comparing prices from at least three companies, but a good quote-comparison site can check 25 insurers or more at once.

That's a good trick to use to save on home insurance and car insurance, as well. If you haven't checked for lower prices in a while, you might be overpaying by as much as $2,000 a year.

About the Author

Noel Fletcher

Noel Fletcher


Noel Fletcher is an insurance and taxes reporter at MoneyWise. Prior to joining the MoneyWise team, Noel wrote for various U.S. and international business magazines, newspapers, syndicates and wire services, including Reuters. For fun, she writes books, takes photographs and enjoys adventure, travel, history and a good cup of coffee.

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