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How to Pick the Right Insurance Coverage When You're Self-Employed

By Chris Porteous,
business.com writer
|
Jan 26, 2020
Image Credit: Rawpixel / Getty Images
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Don't skip on insurance. Here's how to determine what coverage you need and how to get it.

Ask anyone who's self-employed what they like about their career path, and they'll certainly say that the flexibility and freedom of being their own boss are high on the list. Talk a little longer about the drawbacks that come with being you're own boss and the cost of insurance is likely to come up. 

Everything has its pros and cons, and if you've joined the estimated 15 million Americans who have embarked on the road of self-employment, securing insurance can be a real headache. 

When your employer offers insurance, hitting a road bump in life isn't as big of a deal. There are a lot of "what ifs" that arise with self-employment, and forgoing insurance or going with the wrong plan creates a nightmare situation. 

Keeping costs low is essential for self-employment, especially if your business is just getting started, but don't skip on insurance. Having the right insurance is imperative for the well-being of you, your family and your business. Here's how to determine what coverage you need and how to get it if you've embraced the entrepreneurial self-employed spirit.  

1. Securing health insurance is an obvious must-do

It might seem like an obvious statement, but its truth is worth echoing – when you're self-employed, everything depends on you. Getting the flu can put you out of commission for a few days and that means lost income. An even more dire situation such as an injury can really eat into one's income and savings if they don't have health insurance. So how does a self-employed individual secure health insurance?

If you have a partner, you might be able to obtain coverage through his or her work. If this is the case, consider yourself lucky. When that's not an option, you'll need to find individual coverage. HealthCare.gov is one place to start, but you may also want to look into professional employer organizations, or PEOs. These are companies that outsource things like payroll and other tasks and may offer healthcare as a benefit for an additional fee. 

It's also worth looking into such organizations as The National Association for the Self-Employed and the Freelancer's Union. Both offer different health insurance options plus financial planning benefits like a 401(k). 

Finding health insurance when you're self-employed requires research, but there is a silver lining. Self-employed individuals can claim a tax deduction on their health insurance premiums, which will put a little more money back in your pocket.

2. Don't discount disability insurance either

Getting sick for a few days when you're self-employed is always going to be a setback, but what if it's something that takes you away from work longer?

Here's where disability insurance comes into play. Disability insurance often gets ignored with an estimated 51 million adults not having it, but if you're self-employed and the sole breadwinner of your household, having some coverage is a good idea. 

Disability insurance is generally designed to cover around 60% of your income, and there are two types available: short and long term. Short term is only meant to cover around three to six months.

Long-term disability insurance kicks in after that short-term window ends. You may have to hunt to find a policy – many insurance companies only offer limited benefits to self-employed individuals. Check with PEOs and different self-employed organizations to see what potential policies might be out there. You may be able to find occupational or "own-occ" disability insurance that is designed to provide coverage for the job you were trained in, such as a dentist, mechanic, contractor, etc. 

You may not have a traditional employer paying for your disability coverage, but this is all the more reason to have it.  

3. Make sure you're looking after your family with life insurance

If you support a family, then having life insurance is going to be an important pillar of your family's well-being. Unless your self-employment career has been so financially successful that you can self-insure – which isn't likely in the beginning – you'll need life insurance coverage. 

Acquiring life insurance coverage when you're self-employed is, thankfully, relatively straightforward. You'll want to check out a few different insurance aggregators and enter your health information to see what sort of prices and term limits are available. There's a range of life insurance options from whole to term and universal. Whole life insurance is marketed as an investment, but opting for term life insurance will generally give you the most bang for your buck. 

Term life insurance tends to be much less expensive and a policy 10 to 12 times your annual income will provide for your family for a specific time period, should you kick the bucket. Ideally, you should choose a policy that will last until your kids become old enough to make it on their own. 

The cost will go up with the risk, so if you're a self-employed sky-diving teacher who smokes two packs of cigarettes a day, well, you'll pay more than somebody who runs a yoga studio. In either case, having it when you're self-employed with a family that depends on you is an absolute must.  

4.  Protect yourself with business insurance

There's always going to be a certain amount of risk involved with self-employment, whether you're a freelance copywriter or have your own carpentry company. Buzzsaws may pose a greater threat than a keyboard, but having some form of business insurance in play can help protect against various gaps in any already existing insurance policy. 

Since many self-employed individuals have the benefit of working from home, going with a home-based business insurance policy would cover things your homeowners insurance might not. This could be anything from certain damages that fall outside of your homeowners insurance to the theft of property you need for your work. 

If you run a small business, general liability business insurance can cover your business for a  range of things, from slander to somebody slipping on the floor of your business. Nobody is perfect, which is why some form of business insurance should be in place for the self-employed.

Business insurance policies come in various forms with a range of different prices. Some may cover just property or liability, and others may be a bundle deal. Because of this, you should research what sort of coverage is right for you.  [Read our reviews of the Best Business Liability Insurance Providers of 2020.]

In conclusion 

There's no question that opting to leave behind traditional employment and setting out on the road to self-employment brings with it a certain amount of freedom. With that freedom, though, undoubtedly comes increased risk when the safety net of benefits with a regular job is no longer in place. Skipping out on the insurance coverage, though, can result in the downfall of a new business venture.

Navigating the waters of self-employment is always going to be tricky, and finding the right insurance plans is simply part of that. Squeezing room in the budget can be difficult and insurance can be expensive, but going without it shouldn't be an option.

Whether you're thinking about self-employment are already doing it, health, life, business, and disability insurance should all strongly be given careful consideration. As the saying goes, it's better to be safe than sorry.

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Chris Porteous
Chris Porteous
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I'm a serial entrepreneur and owner of three internet ventures, including My SEO Sucks. A contributor to ZeroHedge, Entrepreneur.com, Forbes, Inc.com, and dozens of other media outlets, I believe in SEO as a product. I developed a proprietary technology fueling the #1 rankings of My SEO Sucks clients. In guest speaking ventures across North American, I advocate for organic search traffic as the backbone of any comprehensive digital marketing strategy.
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