How to Create Your Own Benefits Package When You’re Self-Employed

by Sophia Bera on September 20, 2017

When you’re a full-time employee for a company, you might take for granted all the benefits you get in addition to your actual salary. It turns out that of your total compensation package, 30% goes toward benefits like health insurance, disability insurance, life insurance, 401(k) matches, paid vacation and sick leave, and more.

But nearly a third of U.S. workers are self-employed or work for a self-employed person. That means they’re generally on their own when it comes to cobbling together a benefits package for themselves. Businesses with fewer than 50 employees aren’t mandated to offer health insurance, and many small businesses opt out of offering a 401(k) because of the cost and complexity of creating a plan. (More on retirement savings for small business owners and the self-employed next week!)

So how do you create your own benefits package, where you’re fully covered by insurance but not wiped out by premiums? And which forms of insurance do you need? Read on!

Health, Dental, and Vision Insurance

Even if you’re young and healthy, you cannot skip health insurance! You’re not invincible, so you’ll need insurance coverage in the event you’re injured or sick (you shouldn’t skimp on preventative care, either!).

Also, you’ll pay a penalty for any month you (and your spouse and dependents) aren’t covered by health insurance.

Here are some places to begin your search:

Your State’s Insurance Marketplace: You can search for insurance plans through Healthcare.gov. You may be eligible for tax credits that will reduce your insurance premiums if you meet income requirements — your adjusted gross income must be below $48,240 for individuals, $64,960 for a two-person family, $81,680 for a three-person family, or $98,400 for a four-person family.

Major Insurance Companies: Insurance companies like United, Cigna, and Humana offer insurance plans for individuals and families.

Blue Cross Blue Shield: BCBS is an organization made up of 36 health insurance companies. It offers individual and family health and dental insurance plans.

eHealth: You can search for individual, family, short-term, dental, and vision plans.

Freelancers Union: This is a great resource for full-time freelancers who want support. You can search for insurance coverage and even get some group rates to help you save. (They also offer members discounts for business-related services like bookkeeping and coworking spaces, among other benefits.)

Still confused? Consider working with a health insurance broker. They can help you identify your must-have insurance plan features and find the best fit. They’re paid a commission by insurance companies, so on the plus side, you can work with them for free, but on the minus side, some brokers might try to upsell you in order to earn a higher commission. Stick to the plan features you truly need.

Another way to save: Your university alumni association may offer discounts on health and life insurance policies.

Disability Insurance

I’m a huge advocate of disability insurance for young workers because protecting your ability to earn an income is essential during your prime earning years. If you become ill or injured and can’t work for a few months, disability insurance will allow you to afford your expenses until you’re able to work again. If you’re self-employed, this is even more important, because your business ceases to function if you’re not there.

You might be able to get coverage through a professional organization in your field, or through the Freelancers Union. Group policies often provide more affordable coverage, but with a broader term of what it means to be “disabled.”

An insurance agent can help you determine the level of coverage you need and find policies that match those needs.

Life Insurance

Life insurance can protect your family and business if you die (can’t talk about this insurance stuff without getting a little morbid — sorry!). If you take out a loan to start a business, you might be required to have a life insurance policy in place to cover business losses in the event you pass away. If you’re a sole proprietor, your personal assets might have to cover business debts, so protecting yourself and your family is key.

Discuss your life insurance needs with a financial planner and insurance agent, but be wary of being oversold on fancy insurance products that you don’t understand (whole life, universal life, etc.).

I’m a huge advocate of term life insurance, but I really get upset when I see millennials with whole life insurance policies. I’ve never seen a situation where it made sense for a young client to take out a whole life insurance policy when the premium payments are high and the coverage amounts are low. I’d rather see a client take out a 20, 25, or 30 year term life insurance policy with a much higher death benefit ($250,000, $500,000, $1M, etc.) and use the difference in premium payments to invest.

Paid Time Off

If you’ve only had jobs with paid vacation and sick time, working for yourself and going without a paycheck on vacation for the first time can come as a shock. There are a few ways to soften the blow:

  • Anticipate the cost of days off. When you calculate your annual income (especially if you’re a freelancer or contractor who is paid hourly), anticipate that you’ll only work 50 weeks (or fewer) a year. Factor that slightly lower salary into your monthly and annual budget.
  • Set up automatic deposits into a “paid time off” savings account. This money is there too keep you afloat if you’re off of work for a week or two and have bills due during that time.
  • Budget for vacations. The cost of travel, plus the fact that you’re not paid while away, makes vacations hurt your bottom line even more. Set money aside for trips throughout the year so you have the money available to spend when you travel. Even better, use points earned from rewards credit cards to pay for travel.

Don’t chain yourself to your desk. Just because you take a financial hit when you don’t work doesn’t mean you don’t need or deserve time off. Take vacations! If you’re sick, rest! You’re no good to yourself, your family, or your clients if you burn out.

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