Self-Employed Life Insurance: Options, Costs & a Reality Check for Canadians

Best term life insurance for self-employed Canadians

From freelancers to small business owners, self-employed Canadians can secure peace of mind for their loved ones with a term life insurance policy. We analyzed over 450,000 term life insurance quotes from trusted Canadian carriers and chose the top five plans for self-employed workers:

^{* Our star ratings are based on a mix of each provider’s financial stability and Google Review scores, and each product’s pricing and ease of purchase.
**For each product, we calculated the average monthly premiums for a female non-smoker. The results show the approximate cost of a 10-30-year term life insurance policy with $600,000 of coverage.}

Term life insurance by PolicyMe

Solution by the Empire Life Insurance Company

RBC YourTerm by RBC Life Insurance

Term life insurance by Foresters

Term life insurance by Desjardins

"Term life insurance is a simple and affordable way to protect your family’s financial future. The key is finding a policy that balances affordability with the right coverage amount." — Christelle Arouko, Licensed Insurance Advisor

Why self-employed Canadians may need life insurance more than employees

Self-employed Canadians and their families are more exposed to financial risk than salaried employees, so life insurance policies can help ensure the family’s stability if the self-employed person passes away suddenly.

• Families may rely on a single earner
• Lack of workplace life insurance
• Business debts may be personal
• Business continuity may be at risk

Some families rely heavily on a self-employed person’s income. The truth is that even a very successful solopreneur may not enjoy the same workplace protections that a salaried employee enjoys, so life insurance and income replacement are extremely critical.

Entrepreneurs may also be eager to ensure the continuity of their business. A life insurance policy can provide funds to cover operating costs, repay the owner’s line of credit, hire a replacement, or support a buy-sell agreement. 

Why term life insurance is the smartest choice for self-employed Canadians

Term life insurance is the best choice for most self-employed Canadians with financial obligations like dependents and a mortgage. But what about permanent life insurance—isn’t that a valuable option for financial planning? 

It depends. Term life policies are designed to cover vulnerable periods of a family’s life without draining your finances, which makes them the best fit for self-employed Canadians looking for a safety net to protect against the financial consequences of an unexpected death. If you die unexpectedly within your chosen policy period, the tax-free lump sum payment from a term life insurance policy can help your loved ones: 

• Pay off any outstanding debts, including business debts
• Cover final expenses, including burial costs and medical expenses
• Replace your income to meet ongoing daily needs
• Finance your children’s care and education

By contrast, permanent life insurance policies function as an estate planning tool that can leave a death benefit to your loved ones regardless of when you die. Unlike term life insurance, which has a fixed lump-sum payout, some types of permanent life insurance include a cash value component that builds over time as you make premium payments. These policies charge steep premiums across your lifetime in return for a guaranteed payout years down the road, which makes them a less cost-effective choice for most Canadians, especially self-employed people on a tighter budget.

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 who’s maxed out traditional retirement savings mechanisms
• 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. 

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Let your life insurance be life insurance

Be wary of financial advisors who push whole life insurance products as an investment opportunity rather than an insurance solution.

Calculate your life insurance needs as a self-employed worker

Your life insurance policy should include enough coverage to cover any major debts, maintain ongoing financial obligations like business expenses, 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 

To simplify the math, you can use an online calculator like PolicyMe’s free life insurance calculator to estimate the amount of life insurance coverage you need to buy. Enter basic details about your household income, ongoing expenses, debt, and assets, and you’ll receive three coverage recommendations: a low, moderate, and high-coverage option to help you fit your insurance to your budget.

“Term life insurance is a simple and affordable way to protect your family’s financial future. The key is finding a policy that balances affordability with the right coverage amount.” — Christelle Arouko, Licensed Insurance Advisor

Example #1: Parent with a mortgage? Higher coverage, longer term policy

Maria is 38 years old with two dependents, a larger mortgage, and some small business debt.

• Family status: Two young children
• Employment: Self-employed, $85,000 per year
• Financial needs: $420,000 remaining on mortgage, $30,000 personal debt, $80,000 for kids’ future tuition
• Income replacement: $85,000 x 10 years (until her kids are closer to financial independence)

The best policy for Maria is a 20-year term policy with $1–$1.5 million in coverage to clear her debts and cover her while the mortgage is still being paid off.

Example #2: Contractor with no kids? Lower coverage, shorter term policy

Tarik is 45 years old with a partner but no children. He has a smaller mortgage and healthy savings for retirement.

• Family status: Partner, no kids
• Employment: Self-employed, $110,000 per year
• Financial needs: $90,000 remaining on mortgage, $18,000 personal debt
• Income replacement: $110,000 x 5 years (to give additional support to his partner)

The best policy for Tarik is a 10 or 15-year policy with $500,000 to $750,000 in coverage to pay off his debts and give a little boost to his partner on top of their retirement savings. Tarik might consider a permanent policy if he has estate planning concerns or wants to ensure that his partner gets a payout whenever Tarik passes away.

“To keep premiums low and still get meaningful protection, buy the amount of coverage your family would truly need for things like the mortgage, education, and living costs.” — Jeremy Burbano, Life Insurance Advisor

Life insurance for freelancers vs. incorporated business owners

In lieu of employer-provided benefits, non-salaried workers (whether freelancers or incorporated professionals) should consider personal life insurance policies.

Freelancers and contractors: You work independently and earn income personally. You are paid per project or contract and report your income on a personal tax return.

→ Life insurance should replace lost income, pay off debts, and protect your dependents.

Small business owners and incorporated professionals: You might be one person or a team of people, but you manage your work through a corporation as a separate legal entity. You receive wages through the corporation.

→ Life insurance should replace your income, cover your dependents, repay business loans, and handle corporate obligations.

Term life insurance is a good place to start, no matter which category you fall into. It’s an affordable, simple way to protect your family and your business.
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Do you need other types of insurance?

Life insurance isn’t the only type of insurance self-employed Canadians may need. Other types of financial protection typically included in employer-sponsored group insurance plans include health insurance, critical illness insurance, and disability insurance. Consider whether you need these protections when setting up your life insurance.

FAQs: Self-employed life insurance