Article
Life insurance when you work for yourself
Reviewed July 2026
You have no safety net to supplement
Most employees have some group life coverage through work — often one or two times salary. It is rarely enough, but it is a floor.
Self-employed people have no floor. Whatever you buy is the entirety of what your family gets, which means the sizing exercise matters more, not less.
Proving income when it moves around
Insurers cap coverage as a multiple of income, so an underwriter needs an income figure. If yours varies year to year, expect them to average two or three years of tax returns rather than take your best one.
That has a practical consequence: aggressive deductions that minimise taxable income also minimise the income an insurer will credit you with. If you are planning to apply for a large policy, be aware that the number on your return is the number they use.
Have two or three years of returns and a current profit and loss statement ready. Being organised here removes one of the more common causes of delay.
Business debt you have personally guaranteed
This is the piece that catches people. If you signed a personal guarantee on a business loan, a line of credit, or a commercial lease, that obligation does not evaporate when you do — it lands on your estate and, in practice, on your family.
Go through every financing document and total up what you have personally guaranteed. Add it to your coverage calculation. Many self-employed people are underinsured by exactly this amount because they mentally file it as business debt rather than personal debt.
Coverage for the business itself
Separate from protecting your family, there are two business structures worth knowing about.
Key person coverage insures the business against losing someone it cannot easily replace. The business owns the policy and receives the benefit, which buys time to recruit or wind down in an orderly way.
Buy-sell funding matters if you have partners. A funded agreement means the surviving partners can purchase your share at a pre-agreed price, rather than your family inheriting a stake in a business they cannot run and the partners cannot afford to buy out.
Both are legitimate uses of permanent coverage and both warrant a conversation with your attorney, not just an insurance agent.
Practical notes
Term length should reach whichever is longer: your children’s independence, or the maturity of the debt you have guaranteed.
Consider laddering — two or three policies of different terms — if a large obligation clears well before your family stops depending on your income. You drop the shorter policy when the debt is gone and stop paying for coverage you no longer need.
Premiums on a personal policy protecting your family are generally not deductible. Do not let a deduction drive the structure; ask your CPA about the specific case rather than assuming.
General information, not insurance advice. Product details change — confirm anything material directly with the carrier.