Life insurance for self-employed people

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Why does life insurance matter if you work for yourself?

For self-employed individuals, life insurance is crucial because income ceases if you die . Your family may need help with day-to-day expenses, debt payments, childcare, and funeral costs. A life insurance policy can pay a lump-sum death benefit to your beneficiaries if you die while the policy is active, which may help them manage those needs.

If you own a business, the need can be even broader. You may be the sole income earner, the person who manages operations, or the one whose skills hold the business together. In such cases, life insurance can help with:

  • business debts,
  • buy-sell planning, or
  • a transition period while others adjust.

A simple way to think about it is this: employees may have group coverage at work. Many self-employed people do not. That makes personal coverage more important to review as part of your financial roadmap.

What do self-employed people need to consider when buying life insurance?

The right life insurance starts with your responsibilities. Your needs may change depending on whether you are a sole proprietor, incorporated, running a partnership, or freelancing part time.

Here are the main questions to ask yourself:

  • Who relies on your income?
  • What debts would remain if you died?
  • Would your business need money to keep running or wind down?
  • Do you have children, a partner, or other dependents?
  • Do you want coverage only for a specific period or for your lifetime?

These questions matter because life insurance should fit your real life. The goal is not to buy the largest policy you can find. The goal is to choose coverage that matches the people and obligations you want to protect.

Should self-employed people choose term or permanent life insurance?

There are typically two types of life insurance to choose from: term life insurance and permanent life insurance. You can even opt to have both policies at the same time. The right choice depends on your financial goals and needs.

Term life insurance works well when the need is tied to a set period, such as a mortgage, business loan, or the years you’re raising children. Permanent life insurance may suit people who want lifelong coverage for estate planning, final expenses, or business succession planning.

Here’s a quick breakdown of how term and permanent life insurance works:

Term life insurancePermanent life insurance
Coverage lengthSet period, anywhere from 5-40 yearsLifelong, as long as premiums are paid
PremiumsFixed during the termUsually more structured and may stay level, depending on your policy rules
Main useTemporary needs, debt, income replacementLong-term protection, estate planning, final expenses, and business planning purposes
Cash valueNot availableSome permanent products may build cash value over time
FlexibilitySome term policies may offer the chance to convert to a permanent policyDepending on your policy rules, you may have flexible payment schedules and death-benefit adjustments

A combination approach: Many self-employed individuals benefit from having both term and permanent life insurance. Using both together gives you lower-cost protection for immediate obligations plus long-term security that never expires. If you’re not sure what’s right for you, call or find an advisor near you for a consultation.

Learn more about owning multiple life insurance policies in Canada

How much coverage does a self-employed person need?

Coverage needs depend on your income, debts, dependents, and business structure. There is no single number that fits everyone. A useful starting point is to think about what would happen if you died tomorrow and your income stopped.

You may want to consider:

  • current living expenses for family members
  • mortgage or rent payments
  • business loans or lines of credit
  • taxes owed by your estate or business, where applicable
  • childcare or education expenses
  • final expenses
  • a transition fund for your business
  • any buy-sell or partner obligations

If you’re incorporated, you may also need to think about how money flows through your corporation and what the business would need if you died.

Calculate how much you’ll need

Our life insurance calculator can help you get started. Answer a few questions and get a quick estimate of how much insurance you may need. Think of the estimate as a foundation for your decision, then compare your options and talk to a Sun Life advisor if you want help narrowing them down.

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Frequently Asked Questions

Underwriting is the review process insurers use to assess medical and financial risk when you apply for coverage. It helps determine whether you qualify, what type of coverage may be available, and what premiums you pay. For self-employed applicants, underwriting may consider:

  • age
  • assigned sex at birth
  • health
  • lifestyle habits
  • risk factors
  • the type of coverage you want

Underwriters may also request:

  • 2-3 years of tax returns
  • Profit and loss statements
  • Business formation documents
  • Bank statements
  • CPA letters verifying income stability

Tip: Maintain organized financial records. Inconsistencies or missing documentation can delay the approval process.

Life insurance can be more affordable than many people expect, especially if you choose a term policy that matches a temporary need. Term insurance often gives you higher coverage for a lower monthly premium than permanent coverage, though the exact amount depends on your age, health, and policy details.

A few things can affect what you pay:

  • your age
  • your health
  • whether you smoke or use tobacco
  • your family history
  • your job or activities
  • the amount and length of coverage
  • whether the policy includes optional features

If budget is a concern, term life insurance may be a practical starting point. If you want lifelong coverage and are comfortable with a more structured design, permanent life insurance may be worth reviewing.

Common mistakes to avoid include:

  • waiting until your health changes, which can make coverage harder to get
  • choosing too little  or too much coverage
  • overlooking debts or tax exposure
  • forgetting to review the policy after marriage, children, or business changes
  • buying permanent coverage without checking whether term would fit the current need
  • buying term coverage without thinking about renewal or conversion options

Consulting with an advisor can help you avoid costly mistakes when purchasing life insurance. An advisor can assess your complete financial picture – income, debts, dependents, business structure, and long-term goals – to recommend appropriate coverage amounts and policy types tailored to your specific situation. They can help identify gaps in your protection, prevent over-insuring or under-insuring, ensure your policy aligns with tax-efficient strategies, and review your coverage regularly as your circumstances change.

Rather than making assumptions or guessing your needs, professional guidance can help ensure your life insurance strategy is comprehensive, cost-effective, and properly integrated with your overall financial roadmap.

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Additional resources

Insurance for business owners

Find out how insurance can help you protect yourself, your business partners and your family.

Term vs permanent life insurance

Learn more about the differences between these two types of life insurance.

Term life insurance rates in Canada

Find out how much a term policy may cost you.

If you’re not sure what kind of life insurance is right for you, a Sun Life advisor can help you sort through your options. Connect with an advisor to talk about your goals and the kind of protection that may fit your life now.

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This information is meant for educational and illustrative purposes only. Some conditions, exclusions and restrictions apply.