The purpose of life insurance is to provide financial security to a person’s dependents after the policyholder’s death. While this view is generally correct, it is of paramount importance to those who are self-employed.
Life insurance is a crucial part of financial planning for the self-employed because of the special risks and obligations that come with being your own boss.
For those who work for themselves, life insurance is a necessity that we shall discuss in this article from five different angles.
Financial Protection for Dependents
People who work for themselves frequently have dependents. That person could be your spouse, your kids, or even your parents. Life insurance provides a lump sum payout to beneficiaries that are not subject to taxes in the case of the untimely mortality of the self-employed person. It’s important to evaluate all of your legal options before purchasing a significant cash value life insurance policy.
Protecting your wealth effectively requires making informed decisions; a Blake Harris Law expert asset protection attorney can assist you in doing so. With this help, dependents may afford to keep up their standard of living, continue their education, meet their basic needs, and pay off any debts they may have accrued.
Business Continuity
Sole proprietorships and informal partnerships are common business structures among the self-employed. These businesses depend heavily on the knowledge, experience, and efforts of their owners. A buy-sell agreement is a legal document that specifies who gets the business upon the death of its owner and how much each shareholder gets.
If a company partner dies, the policy payout can be used to buy out their share, allowing the other partners to carry on without interruption.
Covering Outstanding Debts
Loans for their businesses, mortgages, and other bills are commonplace among self-employed people. If they haven’t gotten enough life insurance, their loved ones may have to shoulder the cost of paying off their debts.
Life insurance can be set up to pay off these debts so that heirs are not burdened with paying off loans or mortgages, which could help them escape financial hardship and even foreclosure.
Peace of Mind
Self-employment’s financial uncertainties might make people anxious. Self-employed people must provide for themselves, unlike typical employees who may be covered by their companies’ life insurance plans. The security of knowing that one’s loved ones won’t go hungry in the face of tragedy is one of the main reasons why so many people invest in life insurance.
Estate Planning and Tax Benefits
Those who are self-employed may benefit from including life insurance as part of their overall estate strategy. It has favorable tax implications that can reduce the taxable value of the estate after death.
In most cases, beneficiaries do not have to pay taxes when they get the death benefit from a life insurance policy. To leave a legacy to loved ones while minimizing any tax liability that may result from other assets, this strategy can be quite useful.
Endnote
There are other factors that self-employed people should think about when choosing a life insurance policy than the five mentioned above. When deciding how much and what kind of insurance to get, it’s important to consider the policyholder’s age, health, income, and the number of people who rely on them.
It’s clear that life insurance is an essential asset for those who are self-employed as well as those who are employed. The security and confidence that their loved ones would be cared after in their absence is priceless.
Article and permission to publish here provided by Pamela Lattimore. Originally written for Supply Chain Game Changer and published on September 15, 2023.
Cover photo by Cytonn Photography on Unsplash