Life insurance is not exactly the most cheerful subject. But when you start a family, you start to realize why 44% of households have a life insurance policy: our children!
You’re used to going it alone—that’s what it meant when you started freelancing, and you never looked back! But when you decide to start a family, you suddenly become responsible for more than just yourself. Once you have children, you want to ensure that they’ll be provided for, even in a worst case scenario.
Life insurance isn’t expensive, especially when you’re young. You can choose how long your term lasts so that as your family grows, they won’t need the policy anymore. But when you start a family, remember to protect the ones you love.
Here's what parents need to know about life insurance.
What’s the right kind of life insurance for me?
You need to make two choices: first the type of life insurance, then the amount of coverage you need (basically, the amount of $ your beneficiaries will get).
First, decide what type of life insurance is best for you.
Term life insurance
Overview: The simplest, often cheapest type of life insurance. It’s intended to protect the remaining family members in the event that a financial provider unexpectedly passes away.
How it works: You pick a term (hence the name) and the amount of coverage you want. The term is for how long you think you’ll need life insurance. For example, suppose you have young children. You’ll want them to be financially covered until they’re old enough to provide for themselves. So you might select a 20 year term life insurance plan.
You’ll pay premiums over the duration of the term. Your family is only eligible to receive a death benefit during the term, and as long as you’re paying premiums. The idea behind term life insurance is that at the end of the term, that you generally won’t need life insurance anymore because your dependents will be grown and you won’t have to worry about providing for them.
Freelancers Union provides access to Guardian’s term life insurance policy, a flexible, easy-to-use plan designed especially for freelancers. You can look it up at our National Benefits Platform.
Permanent life insurance
Overview: Whereas term life insurance only pays out a benefit within the duration of the term, permanent life insurance is exactly what it sounds like: it’s for life. Premiums for permanent life insurance are therefore much more expensive, because insurance companies know that they’ll have to pay out the benefit at some point. Permanent life insurance is generally a better option for individuals with a high net worth who want to make sure they leave behind a lot of cash -- for example, to pay off estate or inheritance taxes.
How it works: You’ll pick the amount of coverage you want and start paying premiums, which will be high but remain steady. Permanent life insurance accumulates cash value, which mean you can borrow against it to use it for retirement or education. There’s also a forced savings component, which means that you’ll be investing part of your eventual benefit.
In general, permanent life insurance is much more complex than term life. It’s best to talk to a financial advisor if you think permanent life insurance is a good fit for you, because then you can discuss the intricacies of various plans and policies.
So what’s better, permanent life or term life? It really depends on your individual situation. Here are a few experts discussing the difference:
How life insurance works, in 90 seconds
Which is better for you? Term or permanent life insurance?
Term vs. Permanent life insurance
After you’re done figuring out what kind of insurance will work for you, you’ll need to decide how much “death benefit” your family needs. This might also factor into the type of policy you want to take out. If you’re the sole financial provider, think about how much you make in a year, and then think about how many years you’ll want the policy to be in place. A good rule of thumb is to get coverage for 10x your annual salary. The coverage amount will also vary depending on whether you choose term or permanent life insurance.
As you might suspect, your premium depends on how much “death benefit” your family will receive. So if you’re only looking to leave $50,000 behind to cover taxes, your premium will be a lot less than a $1 million policy intended to support your dependents for several years.
Since we don't offer access to a permanent life insurance policy, we're going to stick to info about term life insurance for now. If you do have questions about permanent life insurance, you should get in touch with a financial advisor who can help you out!
Am I losing money by getting life insurance?
It’s best not to think of life insurance as a product but as a protection against a worst-case scenario. Yes, if you outlive your term, the insurance carrier isn’t obligated to pay out the benefit… but outliving one’s life insurance policy is a pretty good place to be.
What happens if I stop paying my premium?
In term life insurance, if you stop paying your premium, you’ll lose coverage.
Will my family get taxed when they get the money?
Short answer: no, probably not. If you don’t make any changes to your policy, named beneficiaries will not have to pay income tax on the benefit they receive. However, if you’ve changed beneficiaries or transferred ownership, or arranged the benefit so that it accumulates interest and then is paid out, such changes might make the benefit taxable.
Thinking about this depresses me.
Don’t think of it as a negative subject! It doesn’t have to be a bummer: get covered and get peace of mind for you and your family. Freelancers Union offers access to a flexible, easy-to-use plan designed especially for freelancers as part of our National Benefits Platform. Take the steps to take care of the ones you love.
Freelancers Union, Inc. (FU) is not a licensed insurance agent or insurer. Freelancers Union contracts with Guardian to provide you with life insurance. The information on this Website about life insurance benefits is a summary of applicable terms and conditions that is provided for general informational purposes only. The terms of any products are governed solely by the applicable Member Contract. In the event of any inconsistency between information provided on this Website and the specifics provisions of the Member Contract, the Member's Contract shall govern.