Table of Contents
Table of Contents
Key Takeaways
- Self-employed individuals can shop around and compare rates for health insurance on the individual Health Insurance Marketplace, and may qualify for tax credits and cost-sharing reductions.
- Life insurance options for self-employed individuals include term life insurance, whole life insurance, and universal life insurance, each with their own benefits and considerations.
- Critical illness insurance can provide coverage for serious, life-threatening illnesses, complementing health insurance for self-employed individuals.
- Self-employed individuals should research and understand their insurance options to determine the best policies to fit their financial needs.
- Cash value accumulation, withdrawals, and loans from life insurance policies have specific conditions and potential consequences that need to be considered.
Self-employment is becoming increasingly common. Being your own boss often comes with several perks — a flexible work schedule, the ability to work from anywhere and no cap on your earning potential. But for all the benefits, there are also a few caveats to manage that traditional employees may not encounter, such as paying self-employment taxes and purchasing your own insurance.
U.S. Freelancers
And if you have your own business, it's not only health insurance you should be concerned about. Other insurance policies to consider include life insurance and critical illness insurance. If you're wondering where to start when it comes to insurance for the self-employed, here are a few policies to consider.
Health Insurance
Health insurance can get expensive when you have to self-insure yourself, so you may want to try to shop around and compare rates.
One place to start your search is the individual Health Insurance Marketplace.2 You can enroll in a Marketplace plan if you're self-employed and don't have any employees, but certain small businesses may also qualify for coverage.
Depending on your income, you may qualify for tax credits and cost-sharing reductions that reduce your out-of-pocket health care costs. Plus, as someone who's self-employed, you may be eligible to deduct your health insurance premiums for long-term care coverage.3
Life Insurance
Life insurance is another option to consider if your family would experience a financial hardship if something were to happen to you and they lost your income. There are three major types of life insurance to consider.
- Term life insurance provides coverage for a specified period that can be as short as five years or as long as 30 years. In many cases, you can renew the policy when it expires.
- Whole life insurance covers you for your entire life as long as premiums are paid. Although the primary benefit is the death benefit, whole life insurance can also build cash value that you could borrow against or withdraw.4 Doing so, however, could reduce the death benefit or cause the policy to lapse.
- Universal life insurance also covers you for your whole life as long as premiums are paid, but generally with more payment flexibility. When you first open the policy, your payments build up cash value. You then may have the flexibility to change how much you want to pay each year, and potentially use its cash value to help pay premiums as you age. Similar conditions to borrowing cash value from a whole life policy may apply. However, there may also be applicable surrender charges.
Critical Illness Insurance
In life, sometimes things happen when you least expect them. But that doesn't mean you can't try to be as prepared as possible. Critical illness insurance is one way you can prepare. This type of insurance helps provide coverage for some types of serious, life-threatening illnesses. The illnesses covered are defined by, and subject to the terms of, your policy.
Critical illness insurance does not replace the need for health insurance but may be a complement to health insurance if you're self-employed.
The policy pays you a cash benefit to help protect your quality of life with the freedom to use the money however you choose. You can use the money to help pay off debts, supplement lost income, arrange for child care while recovering, take a trip or simply maintain your quality of life.
The Bottom Line
Self-employment may come with many advantages, but stepping outside the bounds of traditional employment means you'll likely have to sort out a number of financial details for yourself, including health insurance, life insurance and other insurance policies.
Though paying for these costs out-of-pocket might seem negotiable, it's important to try to prepare for the unexpected. If you freelance or work for yourself, consider doing your research so you understand all your options and can then determine the best policy types to fit your financial needs.
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- Gig Economy Statistics: 2021-2022 Market Growth, Demographics & Trends. http://www.financesonline.com/gig-economy-statistics/.
- Health coverage if you're self-employed. https://www.healthcare.gov/self-employed/coverage/.
- Deducting Health Insurance Premiums If You're Self-Employed. https://turbotax.intuit.com/tax-tips/home-ownership/deducting-health-insurance-premiums-if-youre-self-employed/L6bRhLaVE#health-insurance.
- The policy would need to be funded properly to access the cash value. Keep in mind cash value may take years to accumulate, unless a large premium is paid up front. Withdrawals may be subject to charges, withdrawals of taxable amounts are subject to ordinary income tax, and, if taken before age 59½, may be subject to a 10% IRS penalty) and loans (e.g., interest is charged on loans, they may generate an income tax liability, reduce the Account Value and the Death Benefit, and may cause the policy to lapse. Please determine whether a withdrawal or loan is best for your situation.
