Full-time employees often get to enjoy workplace benefits. For example, in the private industry, 69 percent of employees have access to medical care benefits, and in state and local governments, that percentage jumps to 89 percent. Life insurance and disability insurance are also common. It’s a nice, mutually beneficial relationship between employers and employees—employees get to pay less for the most important insurance policies in their lives, and employers get to attract and retain better talent.
But what if you’re self-employed?
Since you’re your own employer, you won’t have someone above you to define your benefits policies; instead, you’ll be responsible for finding and paying for those policies yourself. And if you’re trying to build a business on a tight budget, it can be difficult to tell which insurance policies are really worth it—and which ones are just bogging you down.
So which types of insurance should self-employed people have?
Self-employed Health Insurance
For starters, you should get some kind of health insurance, including dental and vision insurance if you can. Self-employed health insurance is a rather expensive insurance policy to get, especially if you’re older, or if you have a pre-existing medical condition, but it’s still far better than the alternative.
Medical bills, and debt racked up as an indirect result from medical issues, are the number-one cause of bankruptcy in the United States. You may be perfectly healthy now, but all it takes is one major incident—such as developing cancer, or being involved in a serious accident—to cost you tens or even hundreds of thousands of dollars in expenses. On top of that, it could render you unable to work, making it even harder to catch up. If you don’t have a self-employed health insurance policy in place to protect you, you could face total financial ruin.
Of course, the exact nature of the policy is up to you—choosing a policy with a higher deductible, or restrictions on certain types of care could grant you lower monthly payments if that’s a concern.
You should also have disability insurance in place. Disability insurance is designed to protect you if you’re ever facing a physical or mental problem that leaves you unable to continue working. Causes of disability are incredibly diverse and hard to predict, and include things like arthritis, cancer, depression, heart disease, and chronic pain. Hundreds of different illnesses and events could prevent you from being able to work, forcing you to rack up medical costs with no income to offset it. Even worse, an unpredicted injury or illness can ruin any self-employed retirement plan that you have set into place. Accordingly, disability insurance should be near the top of your priority list, with options for sick leave, short-term benefits, and long-term benefits.
Business Interruption Insurance
What would happen if your business is unable to continue operating for a set period of time? For example, if your place of business is hit by a natural disaster, if one of your key pieces of equipment goes down, or if you’re medically unable to work, how would you supplement the income you would otherwise make? How would you be able to repair your client relationships? How would you restore your business back to working order and continue working on a self-employed retirement plan?
The simplest strategy is to fall back on business interruption insurance, but of course, you have to purchase it long before your business is interrupted.
General Liability Insurance
For most self-employed individuals, general liability insurance is a must. General liability insurance will protect you from most claims that could come against you while doing business. For example, it could protect you from injury claims made against your establishment, or protect you from accusations of false advertising. It could also protect you if you accidentally cause damage to someone else’s property.
There are many sub-types of liability insurance you may also want to consider. For example, if you’re a handyman and you plan on making home repairs for your clients, you may want a bigger umbrella policy, or a specific “handyman” liability insurance policy. If you’re inventing, producing, or distributing products, you may also need product liability insurance.
Life insurance isn’t strictly necessary for everyone, but it can be enormously beneficial if you have a family that depends on your income or plan on having a good self-employed retirement. If you live alone and don’t have any standing debt, life insurance may not do you much good. However, if you have a spouse and children to consider, and the absence of your income would make life much harder for them, it’s a good idea to get a life insurance policy to cover expenses long after your death.
Other Insurance to Consider
Depending on the nature of your business, there are other policies that may be necessary along with other self-employed taxes. If you have a car you use for business purposes, you’ll need a commercial vehicle insurance policy to cover it. If you plan to hire employees, you’ll be legally required to purchase workers’ compensation insurance in most areas. If you own your business property, whether it’s a storefront or a home office, you’ll need commercial insurance for that too.
Policy and Coverage Tips
If you’re in the market for insurance as a self-employed person, make sure you follow these tips:
- Shop around. This should go without saying, but try to get insurance quotes from multiple companies. The same policy may be priced very differently elsewhere.
- Aim for multi-policy discounts. Most insurance companies provide many types of insurance, and will give you a discount for purchasing multiple policies with them. Use this to your advantage.
- Consider your interactions with each company. When shopping, take note of how easy it is to reach a representative, and how friendly they seem. This is a good indication of the experience you’ll have if and when you need to make a claim.
- Know which risks you face. Not all self-employed people will need the same level of coverage. Consider the unique risks you face, and get the policy that works best for you.
- Ask lots of questions. Even if you think you know what you’re doing, ask lots of questions. Make sure you understand what your policies do and don’t cover before you finalize them.
- Consider consulting with a lawyer. Legal professionals will have a better understanding of which liability issues your business faces, and how your policies might play out. Consider consulting with one if you’re uncertain about anything including policy recommendations and self-employed taxes counseling.
Being self-employed can make it harder and more expensive to get the right insurance policies, but they’re designed to protect you, and shouldn’t be neglected. Make them a priority as you continue to build your business and solidify your financial independence.