Working for yourself has its perks and more Americans are taking their careers into their own hands. The Bureau of Labor Statistics estimates that 15 million Americans are self-employed. Nearly 55 million Americans, or 35 percent of the workforce, are taking on freelance gigs. While being self-employed may offer the freedom to set your own schedule or have Casual Friday on a Tuesday, there’s a downside. When you’re the boss, it’s up to you to make sure you have the right insurance coverage. Here are three vital types of insurance you need to have if you’re treading the self-employment path.
1. Health insurance
Despite the provision in the Affordable Care Act that mandates a tax penalty for going without health care coverage, approximately 28.4 million Americans still don’t have health insurance. If you’re one of them and you’re self-employed, it’s time to get on the bandwagon and not just so you can avoid the tax penalty.
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Having health insurance can protect you financially if you get sick or injured. Without insurance, you may get stuck footing the entire bill if you have to pay a visit to the doctor or, worse, end up in the emergency room. Health insurance is especially important if you have a family.
According to the Milliman Medical Index, annual health care costs for a family of four have tripled since 2001, averaging $25,826 in 2016. Having insurance can keep you from having to shoulder the cost of medical, dental or vision care entirely on your own. An added bonus? Health insurance premiums you pay for yourself, your spouse or your dependents are tax deductible if you’re self-employed.
2. Liability insurance
Liability insurance may sound like something you need as part of your car insurance coverage but it’s also something self-employed individuals can benefit from. In the business context, liability insurance is designed to protect you from lawsuits relating to personal injury or property damage claims.
Say, for instance, that you run a landscaping business and you accidentally damage something on a client’s property. Your liability coverage would be there to pay for any necessary repairs so that you don’t have to pull the cash out of your pocket. Liability insurance can also protect you if you run a business online. For example, you could structure your liability policy to include coverage for contract disputes with clients. Liability insurance could also be useful if you do IT work and a data breach results in your clients’ information being compromised.
Like your health insurance premiums, you may also be able to claim liability insurance premiums as a deductible business expense on your taxes.
3. Disability insurance
Being sidelined by a disability happens to workers more often than you might think. One in five Americans live with disabilities, according to the Social Security Administration, and one in four 20-year-olds will become disabled before they reach retirement age. While Social Security disability benefits can provide you with some income if you’re not able to work, the average monthly payment is just $1,165.
If you’re used to earning a much higher salary through your self-employment activities, having individual disability insurance can help you maintain your standard of living if you become disabled. This type of insurance is designed to replace lost income when you’re not able to work. Disability coverage could prove especially valuable if you have a spouse and/or children who depend on you financially.
For example, if you don’t have sufficient emergency savings to fall back on, short-term disability insurance could cover the gap until you can get back on your feet. Long-term disability coverage would provide a steady stream of cash if you have to give up working permanently because of a disability. Check out brightpeak’s disability insurance guide to learn more about the benefits and costs of purchasing a disability insurance policy.
Don’t procrastinate on getting covered
The three types of insurance described here serve different purposes but they all share a similar goal: to offer you financial peace of mind. If you’re self-employed, making sure you’ve covered your insurance bases can protect your bottom line.