When you’re a 9 to 5er, it’s easy to take your company’s benefits for granted. And now that you’re a freelancer, one of the things you need to tend to is creating your own benefits package.
Plus, as an army of one, self-employed solopreneurs bear the risk of higher uncertainty—hello, feast or famine! It’s even more important that you insure yourself against any potential perils you may face.
Here are key types of insurance sole proprietors should consider:
Medical bills can get very expensive, very quickly, points out Tyler Dolan, a CFP and financial planner at Society of Grownups. Take it from me. Since I went freelance full-time several years ago, health insurance has prevented me from racking up serious medical debt. While my emergency savings did take a hit, incidents such as minor eye injuries to a seemingly benign bug bite that required a trip to urgent care could have easily soared into the thousands, if not more.
It’s important for freelancers to shop for health insurance, but before you go online and buy health insurance coverage, consider the following options, suggests Dolan:
Add yourself to your spouse’s policy, apply for COBRA coverage (which is code for extending the coverage from your previous employer for up to 18 months), look for group health coverage plans in your local business or Chamber of Commerce group, obtain coverage through the Affordable Care Act, or explore health coverage options with Oscar Health, which is popular among freelancers (available in major cities).
“You may find that one of those options is far cheaper than purchasing private health insurance on your own,” says Dolan.
I went the traditional route purchased my health insurance through an online marketplace. These days you can also check out what’s called a Christian health ministry. As it’s got a religious bent and there are a handful of things they don’t cover, it’s not for everyone. On the flip side, the monthly premiums are generally less expensive than what you’d find through the online marketplace.
Do you need life insurance? “Basically if a loved one would have financial hardship if you were to pass away, you may want to consider life insurance,” says Dolan. “Life insurance gets a bad rap, but I’ve seen many situations where loved ones were thankful that their departed had life insurance coverage in place.”
Sure, it’s not terribly pleasant to think about what would happen should something terrible happen to you. But the sobering truth is you really don’t know. Not only can purchasing a life insurance policy help support your family after you pass, it can make the grieving process easier without the additional financial stress, adds Dolan.
There are two main types of life insurance: term and whole. Term insurance covers you for a specified amount of time, such as for 15 or 30 years. Whole insurance builds cash value and also add to the payout when you pass. “You may be surprised at how affordable term life insurance can be for a healthy individual,” adds Dolan.
Both short-term and long-term disability insurance are must-have for anyone who works for themselves. Personally, there’s nothing more terrifying than the inability to work, especially if you’re single like me.
Freelancers are self-employed and therefore don’t have the luxury of vacation days, or sick leave and must protect against a prolonged inability to earn money for their lifestyle, explains Levi Sanchez, a CFP®, BFA™ and co-founder and financial planner at Millennial Wealth.
“Without a disability policy in place, their entire income stream could stop and they’d be unable to pay bills and make progress towards other financial goals,” says Sanchez.
“Many people think their biggest financial asset is their house or their retirement accounts,” says Dolan. “But if you think about it, it might actually be your ability to earn money during your career. Without the ability to work, life can be extremely expensive and stressful.”
That’s where disability insurance comes in, explains Dolan. With a disability insurance policy in place, you may be able to collect a paycheck for a specified amount if you’re unable to work due to illness or injury. Short-term disability typically offers offers a benefit period of anywhere from nine to fifty-two weeks. Short-term disability was the first thing I purchased when I became a solopreneur. And if I can’t work for a period of time, I’ll know I’ll be able to cover my base expenses.
Business Liability Insurance
If you make a mistake as an employee of a company, you’re typically only liable to the extent of your employment, explains Dolan. “Sure, sometimes mistakes cost people their jobs, but employers typically won’t file suit and go after your personal property as well,” he says.
It’s a different story for certain people who work for themselves. If you make a mistake as a sole proprietor, your personal property may be included in a potential lawsuit. Liability insurance can allay that fear and protect your assets.
General liability insurance can cover medical costs if someone gets hurt on your property. In the case that someone sues you, it can cover the cost of settlement and legal fees. Plus, it can also cover cases of copyright infringement, libel and slander.
Since different types of businesses may have different degrees of need for liability insurance,
Dolan explains it’s important to discuss your liability insurance needs with an attorney or a financial professional. They’ll help you gauge what types of liability insurance is best for your type of business.
While not technically “insurance,” one of the most important types of insurance a freelancer can have in place is a solid emergency fund, points out Dolan.
“Having a safety net of at least a few months’ worth of your expenses can relieve a lot of financial stress if something unexpected occurs,” says Dolan. ”It’s life. Stuff happens!”
I have tapped in to my emergency fund countless times to use for anywhere from unexpected medical expenses to when my laptop broke unexpectedly while traveling. Because I had money saved in the bank, what would’ve otherwise been mini-crises were minor annoyances (albeit pricey, but not catastrophic).
Making sure your insurance needs are covered when you’re a freelancer will help protect your assets and ensure your business runs smoothly. Just remember: When you’re shopping around for insurance, make sure to assess your needs and see what is the best fit for your situation. Like everything else in life, there’s no one-size-fits-all.