As freelancers, we like to think big. We go out into the world and forge our own paths beyond the safe cubicles of our old jobs. As we take on new adventures, we need to build even stronger safety nets than our friends working in offices.
One of the biggest challenges of freelancing is insurance — even beyond health insurance, we still need to cover the essentials: life insurance, disability insurance, liability insurance, and renters insurance. With that in mind, we dove into four types of insurance that keep you covered in the worst of times:
Long-Term Disability Insurance
Research highlighted in Policy Genius reveals that people are twice as likely to get a disability than to die young, but a mere 28% of Americans have long-term disability insurance. Long-term disability insurance offers you income over long periods coverage after an illness, injury or accident.
Payment typically starts either 30-days or 60-days after a disability, acting as an income replacement for up to two years or until you reach the age of 65. Although it won’t cover your full salary, disability insurance can cover up to 60% of your income. As with life insurance, the younger you are when you buy, the it’s less expensive it is to purchase.
Make sure that your policy is both non-cancelable and guaranteed renewable — this means that as you age, you continue to pay the same premium. You also want to look for an “own-occupation” policy, which guarantees that you can work in another occupation not affected by your disability while still collecting from the insurance policy.
Liability insurance protects you and your business from lawsuits that can mire freelancers in debt and lost time. A lot of contracts with companies require you have liability insurance, so it’s a good investment when you start your business. Although there area lot of different kinds of liability insurance, professional liability insurance and general liability insurance are the most common types.
Professional liability insurance, or errors and omissions insurance, protects your business from claims that you failed to perform professional services. General liability insurance (CGL or GL insurance) protects your business from third-party claims that you damaged someone’s property or caused bodily injury. A broker can help you figure out which one (or both) best suit your needs. Most freelancers would benefit from a $1 million liability policy, which is surprisingly affordable.
Just like health insurance, liability insurance includes a deductible. Negotiate the deductible level that works well for you, and pay attention to two extra factors: any exclusions and legal fees. Some contracts will include exclusions, failing to protect you in particular circumstances, and others offer separate guidelines around legal fees rather than including them in the covered liability.
If you rent a commercial space or work from home, make sure to purchase a solid renters insurance policy too. Picking out the best renters insurance requires that you figure out just how much your stuff is worth. Buy a policy that covers you above that amount (in case you make any big purchases over the course of the year.) As with the other types of insurance, read the fine print — the lower the number of exclusions, the better the policy. You want coverage for all kinds of damage, including the most common issues: fire, water damage, smoke, theft, vandalism. Confirm that your policy also covers additional living expenses in case your current home becomes inhospitable — you don’t want to rack up hotel and restaurant charges if you have lost your home!
Life insurance is a not-so-fun but important option for everyone, including freelancers. Essentially, it works as a tax-free payment to your beneficiaries if you pass away. Individuals with dependents, like small children, and cosigned debt would benefit the most for life insurance.
There are two types of life insurance: term and permanent. Term life insurance covers you for a period of time, typically 20 to 30 years. If you have children, you can set the end date to the year when they are no longer dependent on you. Permanent life insurance or universal life insurance is much more expensive and lasts for the duration of your life. In addition to guaranteeing payment, permanent life insurance includes an investment vehicle that allows you to borrow against the funds.
Traditional insurance wisdom suggests that individuals “buy term and invest the difference” as universal life insurance isn’t as effective of an investment as retirement funds — always with fixed-term rates. If you’re on the fence about which kind of insurance to buy, follow expert Brand Steck’s advice and “consider a term policy with a conversion privilege, which will permit you to convert the policy into permanent insurance, without proof of insurability, and lock in the rate class you had at the inception of the policy.”
When you buy insurance, talk to fellow freelancers and shop around. As with any business investment, feeling comfortable and confident with your choices is the most empowered way to move forward.