Why there is usually no employer plan behind you
Employed Ontarians often have some amount of group life insurance through work, typically a multiple of salary, along with a group disability plan. Self-employed people, contractors and sole proprietors generally have none of that unless they buy it individually.
That gap is easy to miss because it is invisible. Nothing arrives in the mail to tell you the coverage is absent. It simply is not there, and the household budget is often the only thing carrying the risk.
Family income replacement
The first question is usually the plainest one: if your income stopped permanently, how long would the household need money, and how much? Self-employed income can be uneven, so many people look at an average of recent years rather than the best year.
- Years of income the household would need to bridge
- Whether a surviving partner would need to change work arrangements or childcare
- Existing savings, registered accounts and other resources already in place
- Lump-sum goals such as education costs or a fund to keep a business running temporarily
Personal debts and mortgage obligations
Mortgages, lines of credit and personally guaranteed business borrowing do not disappear. For self-employed borrowers, personal guarantees are common, which means business debt can become a household obligation.
Personally owned life insurance is portable in a way that lender-offered mortgage insurance generally is not: the amount does not decline with the mortgage balance, and it stays with you if you change lenders.
Business-related obligations at a high level
Beyond the family need, self-employed people sometimes have obligations tied to the business itself. These are handled at a high level here because the right structure depends on your corporate setup and should be reviewed with your accountant and, where relevant, a lawyer.
- Personally guaranteed loans, leases or equipment financing
- Buy-sell arrangements between business partners
- Key-person exposure where one person's absence would disrupt revenue
- A short runway of operating cash so a business can be wound down or transitioned in an orderly way
Term or permanent for a self-employed household
Many self-employed people combine the two: a larger term amount covering the debt-and-dependants years, and a smaller permanent amount intended to remain in place. Convertible term is worth asking about, because it may allow a change later without new medical evidence, subject to the contract.
| Consideration | Term leans this way | Permanent leans this way |
|---|---|---|
| Need has an end date | Mortgage years, dependants at home | Estate or final expenses that never end |
| Budget in early years | Lower initial premium for a larger amount | Higher premium per dollar of coverage |
| Income variability | Easier to size coverage to current obligations | Fixed long-term commitment |
| Business succession planning | Sometimes used for a defined loan period | Often discussed for lifelong arrangements |
The disability insurance relationship
Life insurance addresses death. For a self-employed person, a long illness or injury that stops billable work is often the more frequent financial shock, and there is no employer sick leave or group disability plan to absorb it.
Individual disability coverage is underwritten separately, and definitions of disability, waiting periods, benefit periods and occupation classes vary meaningfully between contracts. Self-employed applicants are commonly asked for income documentation.
How underwriting works when you are self-employed
Medical underwriting is the same process anyone goes through: a health questionnaire, sometimes an exam or fluid samples, and sometimes a request for records from your doctor. What differs is the financial side.
- Insurers assess financial justification for the coverage amount requested
- Net business income over several years is often more relevant than gross revenue
- Tax documents or accountant statements may be requested at higher amounts
- Requirements differ by insurer, by age and by the amount applied for
- Applying does not commit you to accepting the offer, and the insurer makes the final decision
What we can and cannot tell you
Nothing on this page is a promise of coverage, pricing, approval or a health class, and none of it is tax or legal advice. Outcomes depend on your individual circumstances, the insurer's assessment and the terms of the contract issued.
Common questions
Do self-employed people need life insurance?
It depends on who relies on the income. If a partner, children or a co-signed debt would be affected by the loss of your income, personally owned life insurance is usually the coverage being considered, because there is rarely an employer plan behind you.
How much coverage should a self-employed person consider?
A common starting point is the income a household would need to replace, plus the mortgage and other debts, plus any lump-sum goals such as education. Our coverage needs page walks through the arithmetic. The final amount you can obtain is subject to insurer underwriting and financial justification.
Is income harder to prove when you are self-employed?
It can require more paperwork. Insurers commonly look at net business income over a period of years rather than gross revenue, and may ask for tax documents when the coverage amount is large. Requirements vary by insurer and by amount applied for.
Should the business own the policy or should I?
That is a structuring question with accounting and legal consequences, and it should be reviewed with your accountant. Many self-employed people start with personally owned coverage for family needs and look at business-owned arrangements separately. We do not provide tax or legal advice.
Do I need disability insurance as well?
Many self-employed people treat it as the more likely event. Life insurance pays on death; disability insurance is designed to replace income if you cannot work due to illness or injury. Neither replaces the other, and both are subject to their own underwriting and contract terms.
Term or permanent?
Term is usually the lower initial cost for a defined period such as the years a mortgage and dependants are in the picture. Permanent coverage is designed to last for life and costs more per dollar of death benefit. Which fits depends on how long the need lasts and your budget.
Keep reading
Illustrative pricing from Canadian insurers before any application.
How much coverage do I need?Work through income replacement, debts and lump-sum goals.
How underwriting worksQuestionnaires, exams, records and what insurers review.
Disability insuranceIncome protection when illness or injury stops billable work.
Health insurance for self-employedPrivate health and dental options without a group plan.
Talk to a licensed brokerReview your situation with an Ontario life and health broker.
Written and reviewed by Mathew Cordeiro, a licensed life and health insurance broker serving Ontario through Bluebird Assurance. This page is general information only, not financial or insurance advice. Coverage, features, eligibility and pricing vary by insurer and are subject to underwriting and policy terms.