How Do Life Insurance Policies Work for Self-Employed Individuals in Canada?

As a self-employed person in Canada, your life insurance needs will, therefore, look a little different than those of those who have other regular employment opportunities. For most working individuals, their workplace group life insurance will be able to cover their life insurance plans. Freelancers, contractors, and business owners, however, need to personally ensure that they obtain proper coverage themselves because they are not automatically covered through an employer-sponsored plan. Thus, this responsibility falls directly into their hands.

Perhaps most commonly, though, what we find with our clients at Canadian LIC who are self-employed regarding this issue is a kind of uncertainty about what the best policies are for them. The kinds of questions they often ask include: How much do I need? What should I get? These are important questions because life insurance is not just about replacing an income, but it would also allow your business to be continued, debts to be paid, and, most importantly, your family secured in case something happens to you.

In this blog post, we discuss how life insurance operates for the self-employed in Canada, the coverage options, and how you can get a free quote for life insurance to suit your specific needs.

Why Self-Employed Individuals Need Life Insurance in Canada

Unlike salaried individuals who can be covered under life insurance in the compensation package they receive, self-employed individuals need to make their own safety net. Your financial situation might fluctuate, income streams might vary, and there is no employer you can depend on if an emergency arises. Because of this, a self-employed individual does need life insurance coverage.

Take, for instance, a freelance graphic designer that we contracted with Canadian LIC. Her business was previously well-established, but she was afraid of what would transpire if there was an abrupt about-turn in activities. Business debts and defaulted loans also haunted her. We consulted with her and came up with a Life Insurance Policy that would cover her family as well as pay out her business liabilities. Such brought her relief about knowing that the people she cared about most would not suffer from her demise.

Types of Life Insurance Policies for Self-Employed Individuals

There are many types of life insurance policies available in Canada, and the one that suits you best depends strictly on your financial goals and personal situation. For self-employed people, the following are the most common options:

Term Life Insurance

Term Life Insurance is generally the cheapest and only covers for a specified period, for example, 10, 20, or 30 years. After you die during that term, the policy pays a death benefit to your beneficiaries, but after you outlive the term, the coverage ends unless renewed.

This kind of coverage is perfectly suitable for freelancers who need coverage at certain stages of life, such as when they have kids or are paying off business loans. For example, we have a self-employed web developer who needs to visit Canadian LIC, requiring coverage over the lifetime of his mortgage. A 20-year term life cover was just so apt for the client, covering the lifetime of the loan at a relatively inexpensive premium rate.

Whole Life Insurance

Whole Life Insurance provides lifetime coverage and includes a savings component: cash value. The cash value accumulates over time, from which you can borrow or pay premiums. Generally more expensive than term life, this product affords the comfort of lifetime coverage.

A freelance photographer who was working with a Canadian LIC selected a Whole Life Insurance Policy. She liked the long-term security and the savings accumulation under the policy. Whole Life Insurance really is a great option for those who do not have a need to have the coverage expire, along with also appreciating the concept of wealth accumulation through the policy.

Universal Life Insurance

Another type of permanent life insurance is universal life insurance. In this case, the premiums are paid differently. Flexible payments can be made to it, and the potential to invest in the cash value portion of the policy is also offered. Therefore, as someone's income might fluctuate, this could be attractive.

Recently, we helped a self-employed contractor who had chosen universal life because his income varied from month to month. With universal life insurance, he was able to pay premiums that go up or down depending on how much income he was producing while adding cash value through investments.

How to Get Life Insurance Quotes Online in Canada

The Internet has made getting a Life Insurance Quote a breeze. If you are self-employed and do not have time to sit in an office consulting with multiple agents, then you can simply log on to find comparison Life Insurance Quotes that fit your budget and give you the right coverage.

Most of the Life Insurance Companies Canada have online quote calculators that you can use to input basic information, such as how old you are, your health, and how much coverage you're looking for, to get an estimated premium. At Canadian LIC, we walk our clients through this step; we ensure they understand how all these variables affect their Life Insurance Policy premiums and ensure they obtain the best rate.

What should be underlined here is that the online quotes for life insurance are just estimates only. The premium that is going to be charged may actually vary when more information has been given by the applicant, particularly with respect to his medical background or even with regard to other lifestyle choices such as smoking or high-risk activities.

Protecting Your Business with Life Insurance

It not only protects the family but also acts as a protection mechanism in business. Those who are self-employed and have other business partners or employees may like to use life insurance to ensure that the business continues to run in case something happens to them.

Keyman Insurance

Perhaps one of the most popular Keyman Insurances or key-person insurances is Keyman Insurance, which is also known as key-person insurance. This is meant to protect the business by offering a death benefit available to be used to fill the gap incurred by replacing the key individual or clearing outstanding debts. If you have a business where you are the sole proprietor and play a critical role in the success of the company, this will surely give your company the financial stability it needs in your absence.

Tax Considerations for Life Insurance

In Canada, most death benefits paid out from life insurance policies are received tax-free. This simply means the transferees of your Life Insurance Policy will get 100% of the amount paid on them without any tax deductible-just pure gain. If you are an employee who is self-employed, the cash value in whole life or universal life, under some policies, may be allowed to grow tax-free.

However, one needs a financial planner to completely understand the tax implications of their investment in life insurance and how this fits with their overall financial plan.

Conclusion: Why Self-Employed Individuals Need Life Insurance

Life insurance is a necessary overhead for the self-employed individual. A Life Insurance Policy could be essential to sustain your loved ones in case of your untimely death, pay off debts related to your business, or guarantee that your business survives beyond your lifetime. It definitely plays an important part in your financial plan.

Don't wait until it is too late to get cover. The most experienced life insurance brokers will get you through all your options, personalized online Life Insurance Quotes, and get you the right Life Insurance Companies in Canada to protect you and your family and business.

FAQs

How do I determine how much life insurance coverage I need as a self-employed individual?

It would help if you considered factors such as your income, business debts, mortgage, and family's living expenses. Life insurance brokers can help calculate the appropriate coverage for your needs.

Can I deduct life insurance premiums as a business expense in Canada?

In most cases, life insurance premiums are not tax-deductible in Canada. However, if the policy is for Keyman Insurance, some exceptions may apply. Always consult a tax advisor for specific guidance.

How do Life Insurance Quotes Online differ from the final premium?

Online quotes provide an estimate based on general information. The final premium is determined after considering more detailed factors such as your health and lifestyle.

Which Life Insurance Companies in Canada are best for self-employed individuals?

Many Life Insurance Companies in Canada offer excellent coverage options for self-employed individuals. Comparing Life Insurance Quotes Online and speaking with brokers will help you find the best provider for your needs.

Can I switch life insurance policies if my financial situation changes?

Yes, you can switch policies or adjust coverage as your financial situation evolves. Universal life insurance, for example, offers flexible premiums, making it ideal for self-employed individuals with fluctuating incomes.