Life Insurance for Self-Employed People: How to Get Covered

If you are self-employed, you get life insurance by buying your own policy, because there is no employer group plan to fall back on. For many freelancers, contractors and small-business owners, that means an individual term policy sized to your net profit, your personal debts and any business debts you personally guaranteed. If partners, employees or lenders depend on you, the business may also need its own coverage.

This guide covers why the gap exists, how to size a policy when your income moves around, what insurers ask self-employed applicants, and how taxes generally work. It is general information, not tax or legal advice.

Why do self-employed people need their own life insurance?

Because workplace life insurance only covers employees. Many employed people get a basic group policy through work without thinking about it. When you work for yourself, that benefit simply isn't there.

Even among employees, coverage is far from universal. The Bureau of Labor Statistics reports that as of March 2026, 59% of private industry workers had access to employer life insurance. At establishments with 1 to 49 workers, access was only 40%. If you left a salaried job to start a business, you probably left a group policy behind too.

There is one safety net you do pay into. The IRS explains that the 15.3% self-employment tax includes 12.4% for Social Security, which covers old-age, survivors and disability insurance. Social Security survivor benefits can help, but they follow their own eligibility rules and formulas and were not designed to pay off a mortgage, a truck loan or a business line of credit.

What happens to your business debts if you die?

It depends on how the business is set up and what you signed. The U.S. Small Business Administration explains that a sole proprietorship does not create a separate business entity, so "you can be held personally liable for the debts and obligations of the business." LLCs and corporations generally shield owners from business debts.

That shield has gaps. If you personally guaranteed a loan, lease or equipment note, the lender may be able to collect from your estate. That can shrink what your family inherits. When you size a policy, list every business debt with your name on it.

How much life insurance do self-employed people need?

Start with what your family would lose, measured by your take-home profit, not your gross sales. For example, a hypothetical contractor who bills $200,000 but nets $80,000 after materials, fuel and helpers is replacing $80,000 of income, not $200,000.

A simple way to build the number:

1. Income to replace. Use your net profit from Schedule C (or your share of a partnership or S corporation's income), averaged over two or three years if it swings. Multiply by the number of years your family would need support.
2. Personal debts. Add your mortgage balance, car loans and other personal debts.
3. Business debts you guaranteed. Add any business loans, leases or equipment notes with your personal signature.
4. Winding down or handing off the business. Add a cushion for final invoices, payroll, rent and closing costs, or for keeping things running until a sale.
5. Future goals. Add college or other big costs you want covered.
6. Subtract what you already have. Savings, retirement accounts your family could use, and any existing coverage.

For example, a hypothetical self-employed electrician who nets $70,000 a year might want 10 years of income ($700,000), plus a $250,000 mortgage and a $40,000 van loan he guaranteed, minus $90,000 in savings. That points to about $900,000 of coverage. Round, illustrative numbers only; your situation will differ.

Our guide on how much life insurance you need walks through other methods, and the life insurance calculator does the math for you.

Which type of life insurance fits a self-employed person?

Many self-employed people build coverage in layers. The personal policy protects your family. Business-owned policies protect the business and your co-owners.

Term is usually the lowest-cost way to cover the years when your income matters most. Permanent policies cost more but can last for life and build cash value, so compare both before deciding. If you are borrowing through an SBA-backed loan, see our guide to the SBA loan life insurance requirement.

How do insurers check income when you're self-employed?

The same way they check anyone's: by comparing the coverage you ask for with the income you report. Insurers generally limit coverage to an amount that makes sense for your earnings, age and debts. Without pay stubs, they may confirm income in other ways.

For smaller policies, many insurers rely on what you state on the application. For larger amounts, an insurer may ask for your recent federal tax returns, including Schedule C or the K-1s from your business, or a statement from your accountant. A few habits make this smoother:

• File on time and keep copies. Two years of complete returns are the easiest proof of income.
• Explain a bad year. If income fell because of a one-time event, such as an illness or a big equipment purchase, tell the agent up front.
• Report net, not gross. Stating gross revenue as income can cause delays when the returns don't match.
• Be ready for the usual health questions. Your age, health and tobacco use are still major factors in the price. Self-employment doesn't change that.

If you want to avoid a medical exam, ask the agent about simplified issue or accelerated underwriting. These policies can be quicker to get, but some cap the amount of coverage they offer.

Can you deduct life insurance premiums if you're self-employed?

Generally, no. IRS Publication 334, the tax guide for small businesses, says that for contracts issued after June 8, 1997, "you generally can't deduct the premiums on any life insurance policy" if you are directly or indirectly a beneficiary. The same rule appears in 26 U.S.C. § 264(a)(1). Publication 334 also says premiums on a policy taken out to get or protect a business loan aren't deductible.

The payout side is friendlier. Under 26 U.S.C. § 101(a), a death benefit paid because the insured died is generally not taxable income to the beneficiary. Publication 334 notes this is true even when the proceeds are used to pay off a business loan.

There are exceptions, especially for policies the business owns. See whether life insurance is tax deductible for business owners for the details. Tax rules depend on your business structure, so check with a tax professional before you set up premium payments through the business.

Should the business own the policy, or should you?

For protecting your family, you (or your spouse, or a trust) usually own the policy and name family members as beneficiaries. That keeps the money out of the business.

A business-owned policy makes sense when the business itself would suffer the loss. Two common cases:

• Key person coverage pays the business if an owner or top employee dies, to cover lost profits, recruiting and debts. To keep the payout income-tax free, federal tax law requires written notice and consent before the policy is issued. See how key person life insurance works.
• Buy-sell funding gives surviving owners the cash to buy a deceased owner's share from the family at a fair price. See buy-sell agreement life insurance for the trade-offs.

What steps should you take this month?

1. List your net profit for the last two or three years.
2. Make the one-page debt list, marking anything you personally guaranteed.
3. Estimate a coverage amount with the steps above.
4. Decide whether any partner, key employee or lender needs separate coverage.
5. Gather two years of tax returns.
6. Compare quotes from more than one insurer through a licensed agent.

To see how six insurers compare on term lengths, conversion options and business tools, read our guide to the best life insurance for self-employed people.

For more guides on business owners' coverage, visit our self-employed life insurance hub.