Why self-employed Canadians need life insurance
As of 2023, just over 2.6 million Canadians were self-employed, according to a study published by Statistics Canada. That’s around 13.2% of the employed population.
Self-employment can mean greater control over your working conditions, wages, and advancement. But it also comes with major drawbacks.
Self-employed Canadians, including freelancers, small business owners, and gig workers, don’t have access to employer-sponsored benefits like group health insurance, critical illness insurance, disability insurance — and, yes, life insurance.
Without life insurance, many self-employed individuals have no way to provide financial support for their dependents in the event of their unexpected death. In other words, the income you’ve worked so hard for could stop overnight, and your family members would only have your savings to rely on: no pension, no insurance payout, and no safety net.
Buying life insurance as a self-employed person means that your loved ones:
Why term life insurance is the smartest choice for the self-employed
Term life insurance is the best choice for most self-employed Canadians with financial obligations like dependants and a mortgage. But what about permanent life insurance — isn’t that a valuable option for financial planning?
Not necessarily. For most self-employed Canadians, term life insurance is the best, most cost-effective way of covering your financial obligations and protecting your loved ones. Term life policies are designed to cover vulnerable periods of a family’s life without draining your finances; by contrast, permanent life insurance policies charge steep premiums across your lifetime in return for a guaranteed payout years down the road.
There are a few self-employed individuals who could benefit from permanent life insurance, though. They include:
- High-net-worth individuals with complex estate planning needs
- Anyone with permanent dependents, such as a disabled child or spouse in need of lifelong financial support
If those two categories don’t describe you, you’re likely better off with a robust term life policy priced to match your actual needs and budget.
Be wary of financial advisors who push whole life insurance products as an investment opportunity rather than an insurance solution.
Life insurance costs for self-employed Canadians
The cost of term life insurance varies based on your age, sex assigned at birth, overall health, smoking status, coverage amount, term length, and the life insurance company you choose to work with. For most non-smoking Canadians under age 40, term life insurance premiums are between $10/month and $50/month.
20-year term life insurance costs
* Monthly PolicyMe sample premiums for a non-smoking applicant.
10-year term life insurance costs
* Monthly PolicyMe sample premiums for a non-smoking applicant.
Factors that impact the cost of life insurance in Canada include your occupation and your gender. Men — the largest group of self-employed Canadians — pay higher rates than women because their life expectancy is lower. You may also pay a higher rate if you’re in a high-risk profession like construction.
Calculate your life insurance needs as a self-employed worker
Your life insurance policy should include enough coverage to cover any major debts and meet your dependents’ financial needs until they’re financially independent.
The simplest rule of thumb for life insurance coverage is to purchase coverage equal to 7-12x your annual income. But for some self-employed individuals, that calculation isn’t the most reliable, since your income may vary depending on your field, the season, and the year.
You can also use the DIME method, which works by combining:
- Your total debts
- Your average yearly income multiplied by the number of years you’d need it replaced
- Your mortgage payments, and
- Your children’s education costs
Let’s see how the two methods could help you estimate the right coverage level to secure your beneficiaries’ financial future.
Scenario #1
Rania: Small business owner, 35
Rania finally realized her dream of opening a food truck selling Egyptian food to support herself and her two sons. This year, she made around $5,000 per week in the summer, with two busy weekends bringing in $10,000 each, but during the rest of the year her revenue averaged around $2,000 per week or less, much of which goes to her ongoing business expenses. She’s also accumulated around $12,000 in credit card debt in the process of opening her business.
Rania uses the DIME method to get a more realistic view of the financial protection her children need, since a simple multiplication of her income wouldn’t account for her debts and business expenses.
- Debt: $12,000
- Average income: $150,000
- Mortgage: $0
- Education: $50,000
Based on these calculations, Rania decides to buy a $250,000 life insurance policy, which would allow her family to pay off her outstanding debts and support her sons if she passes away unexpectedly before they’re grown.
Coverage: $250,000
Term: 20 years
Monthly premium: $13.95
Scenario #2
Martin: Gig worker, 25
Martin supports himself and his wife by working as a rideshare and delivery driver. He makes about $45,000 per year between his various gigs, while his wife makes just $20,000 per year as an at-home piano teacher. He knows that if he passed away unexpectedly, she would struggle to manage their living expenses and shared student debt.
Because Martin and his wife’s income and expenses are variable, he decides to use a simple multiplier to calculate his life insurance needs. He multiplies his average annual income by 7 to estimate the cheapest amount of coverage he could realistically buy to give his wife peace of mind.
Coverage: $350,000
Term: 10 years
Monthly premium: $16.40
Still not sure how much life insurance you need? PolicyMe’s free online life insurance calculator can help you estimate the coverage amounts with the best protection for your family.
Best life insurance for self-employed Canadians
The best type of life insurance for most self-employed Canadians is term life insurance — but no single company offers the best term life policy for all self-employed individuals. To find the right fit for your needs, you’ll need to shop around, do your research, and look for an insurer whose services match your priorities.
To get you started, we’ve highlighted three of the best Canadian life insurance companies with strong options for self-employed individuals:
- PolicyMe: Hits the sweet spot of affordable rates, strong industry backing, and a convenient, user-friendly application process
- Desjardins: Competitive rates (especially for younger applicants), but doesn’t offer online quoting and has limited access outside of Ontario and Quebec
- Sun Life: Excellent whole life insurance products for entrepreneurs in need of high-net-worth financial planning, but higher rates for basic term life policies
Check out the table below for a more detailed summary of our top picks, or review our comprehensive guide to the best life insurance companies in Canada for more recommendations.
* Sample monthly premium for a $500,000 20-year term policy for a 30-year-old non-smoking female.
Why PolicyMe is the best choice for self-employed Canadians
PolicyMe is a digital-first life insurance provider backed by Securian Canada, a financial institution with an A+ financial strength rating from A.M. Best. Our world revolves around providing the most cost-effective, friction-free life insurance solutions to real Canadians.
FAQs: Life insurance for self-employed Canadians
Sources
Helene Fleischer is Content Marketing Manager at PolicyMe, with 9 years in content marketing and 4 in Canada’s insurance industry. She works with skilled writers and licensed insurance advisors to create useful resources that help Canadians navigate insurance decisions with confidence and clarity.
Helene Fleischer is Content Marketing Manager at PolicyMe, with 9 years in content marketing and 4 in Canada’s insurance industry. She works with skilled writers and licensed insurance advisors to create useful resources that help Canadians navigate insurance decisions with confidence and clarity.