Autonomy, freedom, flexibility – there are certainly perks to being a self-employed individual. However, there are also some disadvantages, mainly not having a benefit plan provided.
You’re essentially on your own when it comes to obtaining life, health, disability and other insurance benefits. As a self-employed person, you are placing your family at significant financial risk if you don’t own a life insurance policy.
Such a policy would not only provide your surviving family with a monetary benefit if something was to unexpectedly happen to you, but also provide coverage for your debts related to sole proprietorship.
Why it’s important for everyone to be covered
Any credible financial expert will tell you that you need the protection of life insurance, whether you’re employed by yourself or any other entity. It’s even more important if you have a family or loved ones reliant upon your income.
Most people will be able to earn a living and support their family’s needs and lifestyle as long as need be. However, unexpected deaths happen every day. Without life insurance, such a sudden event could leave your family in an insurmountable financial crisis.
Imagine for a moment the financial repercussions your family might face should you die without life insurance and they lost the financial support of your income. Would they be able to pay for your burial, funeral and medical bills; maintain their current lifestyle; meet financial obligations like mortgages, car loans, utilities, credit cards; and be able to send children to college?
If questions like the above give you any reason to question your family’s financial security, then you need to have an effective life insurance plan in place to ensure that their financial needs and obligations will be provided for should you pass away.
Self-employed individuals need it even more
If you are self-employed, the law doesn’t distinguish between your business and personal assets. In other words, you are legally financially responsible, whether that be with personal or business assets, for any and all debts related to your business.
Let’s say you are the owner of a sole proprietorship and you die. The business will legally come to an end in the eyes of the law. The losses and/or debts related to your business, such as from business loans; federal, state and local taxes; money due to vendors, contractors, suppliers and employees; lease or mortgage payments; and so forth, are now the responsibility of your estate.
The result – your surviving family could be forced to sell off your personal assets to pay the business-related financial obligations and debts, thereby leaving them with less, if any, money to provide for their ongoing personal financial needs.
Such a scenario can be avoided by having a life insurance plan that will adequately cover both your business-related debts and your family’s ongoing financial needs. We can help you determine your life insurance options and which would best fit your unique business and personal needs.
Determining if Permanent Life Coverage Is Right for You
Unfortunately, far too many Americans fail to prepare for their eventual demise and it’s their families that pay the price.
In fact, according to the Life Insurance and Market Research Association, while 85% of consumers agree that they need life insurance, only 62% have purchased a policy.
But buying life insurance can be complicated since there are so many different products — all of them with unique benefits that you need to know about before making a decision.
Permanent life policies include:
- Whole life
- Universal life
- Index-universal life
- Variable life
- Variable-universal life
While each type of policy differs in its details, all provide a death benefit plus cash savings. This makes permanent life insurance an attractive investment for many people, but it’s not for everyone.
Before buying a permanent life insurance product, you should consider the following:
Permanent life may be more than you need
If you are single, have no kids or have grown children, you may not want to purchase permanent life and instead consider a term life insurance policy. These policies provide death benefits for a certain number of years and the premium is a lot less.
But, if you are married and have children, and if you have a lot of debt, you may be better off with a permanent life policy. That way, if you should pass away, your dependents would not only receive the death benefits, but also the cash value of the investment portion of your policy.
It’s limited as an investment vehicle
The investment options in most permanent life policies are not as extensive and high-yielding as other investment products but hey still have their advantages.
If you want a higher return, you may want to consider buying a term life insurance policy and using the money you save to invest in other investment vehicles.
For example, a $1 million permanent life insurance policy might cost $13,900 a year, while a $1 million 20-year term life insurance policy costs $750.
If you invested the $13,150 difference the first year at 5% and let it grow for 20 years, you’d have $34,492. If you did the same every year, you’d have significantly more.
Its a good investment in the right situation
Your heirs pay taxes on the cash value of your permanent life insurance policy only after your death.
Permanent life insurance can be a useful investment for individuals with high earnings who have maxed out their other tax-deferred savings options.
Additionally, permanent life insurance can be useful for older individuals who don’t have much in the way of savings but want to leave a monetary inheritance to their loved ones.
Whether you prefer whole life insurance (with a fixed premium), universal life insurance (with adjustable premiums) or variable life insurance (allowing you to choose how the cash value is invested), talk to us about protecting your family from the inevitable today.ϖ
