Why life cover is key for self-employed individuals

Self-employed individuals that have taken a brave decision to leave their jobs and start a business should avoid mistakenly overlooking the financial benefits of having adequate life insurance.

“Not having adequate life cover when self-employed can result in your family being left in a big pile of debt in the unfortunate event that you pass away,” cautions Lee Bromfield, CEO of FNB Life.

“Even if you had life cover in your personal capacity before starting out, it may still not be enough to cover both the financial needs of your family and business related expenses, regardless of how small your operation may be,” says Bromfield.

For instance, in a situation where a deceased was a sole trader and married in community of property, the surviving spouse would be left to deal with estate administration costs, debt obligations, legal fees and cash flow issues while deciding the fate of the business, amongst other expenses.

Bromfield shares some of the key reasons why self-employed individuals should consider taking out life cover as a risk mitigation strategy;

  • Loss of income or profits – should the family decide to keep the business going, there may be financial expenses incurred while looking for a suitable successor.
  • Business expenses – life cover can help the family to take care of business expenses such as rent, consultants, contractors, suppliers, taxes and broader operating expenses.
  • Business loan – in the event that the business owner had to raise capital to start the business or acquire operating assets, the estate may be held liable.
  • Forced liquidation – should the family be forced to sell the business and its assets to cover its debt, any outstanding amount can be covered through life insurance.
  • Recovering debts – if there was a company or person that owed the business money; it may be challenging to recover some of the funds without having the financial means to seek legal representation.

 Bromfield advises self-employed individuals looking to take out life cover to consult their bank or financial advisors to determine the best cover amount, as this may vary depending on the nature of their businesses and personal financial commitments.

“Do not let a good intention to be financially independent end up being a huge debt burden on your loved ones, by not having adequate life insurance cover,” he concludes.