You’re now your own boss. It’s time to find out what types of health insurance benefits are available to you when you’re working for yourself.

1. What are your health insurance options if you are or become self-employed?
2. When you’re self-employed, what other types of insurance might you need?
3. If you’re self-employed, do you need liability insurance?

So, you’re thinking of leaving your job and taking a chance in the wild world of self-employment. It’s true that being your own boss carries many benefits: You can keep your own work schedule, choose your own clients, and work from pretty much anywhere.

But being self-employed means letting go of a certain degree of security. You’ll want to have enough savings to make ends meet if your business hits a lull — and you’ll need to cover your own health insurance.

Think of this guide as your roadmap to getting started in the world of self-employment.

Self-employed? If you no longer have access to employer-based health insurance, another option could be a short-term plan. Explore short-term insurance options now.

What are your health insurance options if you are or become self-employed?

Depending on what state you live in, you may have 3 main choices: COBRA, which stands for the Consolidated Omnibus Budget Reconciliation Act; Affordable Care Act (ACA) health insurance; and short-term insurance. Here’s a closer look at each type:

• COBRA: This federal law allows you to keep your former company’s group health plan when your job ends. It applies to employers that have health coverage for at least 20 employees. Some states also have their own mini-COBRA laws for companies that have less than 20 employees.
  
  When you choose COBRA, you’re choosing to continue with the same health insurance plan you had with your former employer. You’ll be able to keep your same doctors, and your prescription medications may still be covered under your existing plan’s formulary (drug list). But you’ll be on the hook for the full cost, which includes monthly premiums (bills), plus possibly an additional 2% administrative fee. Coverage can last anywhere from 18 to 36 months.
  
  If you’re in the middle of a course of treatment, you may want to use COBRA to maintain the plan that has provided you with coverage for the care you’re receiving, especially if you’ve met the deductible for the year already. (A deductible is the amount of money you pay for covered health services before your insurance company pays the rest.) But if that’s not the case, or when your treatment ends, you may find that an Affordable Care Act (ACA) plan is more affordable (see below).
  
• Affordable Care Act (ACA) insurance: These individual health insurance plans are legally required to cover preexisting conditions along with a list of essential health benefits that don’t change from plan to plan. But there are some things you’ll want to look out for, including whether your medical providers are still in network and that all your prescription medications are covered under your new plan’s drug list (formulary), so you don’t get hit with high out-of-pocket costs.
  
  Normally, you’re eligible to enroll in ACA insurance plans during the Open Enrollment Period. That’s generally early November to mid-January, but it may be different depending on what state you live in.
  
  But if you’ve lost your job-based health coverage or you have a child or get married (or experience any of a number of other qualifying life events), you may qualify for a Special Enrollment Period (SEP). This means you can enroll in an ACA plan within 60 days of the event.
  
  Your monthly premium payments may be cheaper than COBRA, especially if you qualify for a premium tax credit, which is based on your state, household size and overall income. But your deductible, copays and other out-of-pocket costs may be higher.
  
• Short-term insurance: This is a form of temporary medical insurance. It’s neither a replacement for traditional health insurance, nor is it comprehensive medical coverage. While it used to be able to cover you for a lot longer, recent rule changes have made short-term plans shorter. As of September 1, short-term insurance plans can only last 3 months, with a possible 1-month extension for a total of 4 months, depending on what state you live in.
  
  Another thing to keep in mind: Short-term insurance requires you to undergo medical underwriting, and it’s subject to preexisting condition limitations, unlike the other 2 options. Medical underwriting is a way of evaluating your eligibility based on your medical history. So, if you have a preexisting condition, such as cancer or diabetes, for example, you may be excluded from coverage. To that end, it might be a better option for someone who’s younger and not as much in need of regular doctor visits and treatment.

When you’re self-employed, what other types of insurance might you need?

If you don’t have it set up already, it’s important to get life insurance. There are 2 main kinds of life insurance to choose from: term life insurance and permanent life insurance.

• Term life insurance: Term life insurance is a life insurance policy that pays cash benefits to help your loved ones in the event of your death. Term life insurance isn’t permanent; it’s for a set period of years, generally 10 to 20.
  
  “It’s a temporary hedge against a very large event: your death,” explains Michael Beloff, C.F.P., founding partner of Belvedere Wealth Partners in Stamford, Connecticut. The idea is to spend a small amount of money to help you deal with a catastrophe. “A very low percentage of term policies actually pay out, which makes them more affordable,” says Beloff. There’s no one-size-fits-all answer to how much you need, but Beloff generally recommends 20 times your actual salary.
  
  Some term life insurance plans, like the ones underwritten by Golden Rule Insurance Company, offer a critical illness insurance rider, which can provide a cash benefit if you’re diagnosed with a potentially life-threatening condition such as a heart attack, cancer, renal failure or stroke. That amount is simply subtracted from your term life insurance benefits.
  
• Permanent life insurance: This policy offers lifetime coverage. While all life insurance policies have a death benefit that’s paid to a beneficiary, with permanent life insurance, a portion of your premium builds cash value that earns interest, explains Beloff. This allows you to make some money on your policy as well. Some policies also allow you to borrow from the insurance company using the cash value in your life insurance, he adds. This can be a safety cushion if you’re temporarily low on cash or have unexpected expenses. Just remember that like all loans, you’ll have to repay the insurer with interest.

A supplemental life insurance policy could be a great add-on to your traditional health plan. Learn more about life insurance policies today.

If you’re self-employed, do you need liability insurance?

Liability insurance is a type of insurance that you purchase to protect against claims resulting from injuries and damage to people and/or property. Do you need it if you’re self-employed? The simple answer is yes.

“Anyone who is self-employed should have business liability insurance,” stresses Beloff. “If someone comes to visit you at your home office for business and they slip and fall, it may not be covered under your standard homeowner’s [insurance] policy.”

While a business structure such as a limited liability company (LLC) provides some protection from personal liability, the protection is not absolute for members, and your business can still be sued, Beloff notes. If you’re a professional, such as an accountant, financial adviser or attorney, Beloff also recommends that you explore professional liability insurance. This protects you against financial loss if a client sues you for malpractice, errors or negligence.

If you manufacture and distribute products, you may also need product liability insurance, and if you have a significant amount of property and physical assets, you may need commercial property insurance.

Did you know that in some states you can include eligible children on your short-term insurance policy? Enter your zip code to learn more or call a licensed insurance agent at 1-844-211-7730.

This article contains information that is compiled by UnitedHealthcare or its subsidiaries. UnitedHealthcare does not represent all the information provided are statements of fact.

Sources:

Georgetown University Center on Health Insurance Reforms. “I’m losing my job-based coverage and have been given the option to sign up for COBRA. What are the pros and cons of doing that?” Retrieved from https://navigatorguide.georgetown.edu/faq/im-leaving-employment-and-have-been-given-the-option-to-sign-up-for-cobra-what-are-the-pros-and-cons-of-doing-that Accessed April 11, 2024

HealthCare.gov. “Formulary.” Retrieved from https://www.healthcare.gov/glossary/formulary/ Accessed April 11, 2024

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