Freelancer’s Survival Guide: Insurance
The Freelancer’s Survival Guide: Insurance
Kristine Kathryn Rusch
First, I’ve gotten a lot of great responses to last week’s post on staying positive. Many of those responses have come through private e-mails or on some social networking sites. I’m glad the post helped a lot of you. If there are other topics that you’d like covered—from business-related items to the personal, let me know. Interaction will keep these posts fresh, and will provide you with what you need now, which is why I’m doing this online in the first place.
Second, please do share this blog with people who might be interested or with websites that might cater to freelancers. You can either hit the Share button at the end of this post or you can direct people to the site using this link. And if you’re feeling so inclined, please donate a few dollars to help me fund this project. The Donate button is also at the bottom of the post. You don’t have to have a PayPal account to use it. You can use the credit cards listed around the button as well.
Now, onto a topic I’ve been threatening to cover for some time now: insurance.
Before I get into the topic proper, I have to issue a disclaimer. I am not an insurance expert. I’m not an accountant. I’m not a lawyer. The advice given below is simply my opinion. It’s an opinion based on decades of freelancing, and based on watching others freelance as well.
Here’s what I’ve observed. Most failed freelance careers fail for four reasons. Let’s do this like a Late Show Top Ten List—backwards.
The fourth reason freelance careers fail: A lack of discipline on the part of the freelancer.
The third reason freelance careers fail: A lack of business savvy on the part of the freelancer.
The second reason freelance careers fail: A lack of money management skills on the part of the freelancer.
And the main reason freelance careers fail: A lack of insurance.
Now I know I have your attention, and I also know that most of you don’t believe me. I don’t have statistics to back up these observations, although I’m sure I can find them.
What I do have are countless years of watching friends and other freelancers fall by the wayside. I’ve also failed in a few freelance ventures myself, although never for lack of insurance. Lack of money management skills—check: that was the first time I tried to go freelance with my writing. Lack of business savvy—check: that would be the art gallery I owned with my ex-husband. Lack of discipline—oh, well, never mind. I’ve never lacked for discipline. Discipline is the one thing I’ve always had…when it comes to something I love. If I hate something, I have no discipline at all. But why start a business of any kind if you hate the work?
How does a lack of insurance tank a freelancer’s business? Easy. All it takes is one catastrophe. Just one. And most people don’t make it through life without at least one catastrophe.
My husband Dean Wesley Smith had a house fire as have several of our friends, including writer Len Wein and his wife photographer Christine Valada, who lost their home to fire just this year. (If you want to help Len, creator of Wolverine and lots of other great comic characters rebuild the inventory of comics he wrote, go to http://www.povonline.com/weinproject.htm) A lot of writers, artists, and musicians—all people I know—lost everything in Hurricane Katrina. That doesn’t count the hundreds I didn’t know, including small business owners, who lost not just their homes, but their storefronts as well.
Several years ago, the brush fires in Oakland threatened many in the Bay Area’s science fiction community. After the Northridge Earthquake, I flew to L.A. to help writer Harlan Ellison clean up his ruined home. I heard firsthand from several other writer/artist/bookstore owners about their ruined businesses as well.
Then there are the lawsuits. As my husband Dean—the guy who went to law school and quit during the last week of his third year so that he wouldn’t become an Idaho attorney—says every time some idiot files a suit for something dumb: Anyone can sue anybody about anything.
The suit doesn’t have to be legitimate. The filing of the suit will still equal legal fees for you, even if the judge throws the case out on day one. Not to mention time lost and everything else.
There are other legal problems you can face, from liability issues to stalking issues (if you become famous). Right now, a well-known friend is trying to block someone who is posing as him on Twitter and posting egregious things.
Liability issues happen whether you’re famous or not. At a restaurant where I waitressed in high school, a little old lady slipped on a wet floor and broke her arm, then sued the restaurant for years for neglect and other things, even though the wet floor was clearly marked as wet (along with a big yellow CAUTION sign) and despite the fact that the restaurant’s insurance paid for her medical care.
Insurance is for the unexpected, the catastrophic, and the extremely expensive events life throws at you. Even if you weren’t considering the freelance life, I’d urge you to get insurance.
I learned early how few people actually get the insurance they need and how much lack of insurance costs them. I rented apartments to students and low-income folk, most of whom told me they couldn’t afford the $8 per month (then) renters’ insurance. The gamble that nothing will happen to you is huge.
Something will happen: the key is surviving it. And guaranteed, you’ll survive it better with a little money from insurance payments than you will with no money at all.
So here are the insurance items every freelancer needs:
Health Insurance. You’ve seen me mention this before, but I can’t stress it enough. You have no safety net if you don’t have health insurance. Your business depends on you. If you’re incapacitated, then your business doesn’t run at all. Money stops coming in, and the savings you’ve built up will disappear.
It’s amazing how fast money disappears when you aren’t getting paid and you have to pay medical bills. I had emergency gall bladder surgery five years ago, and my insurance paid about $30,000—much of it they had negotiated down from the sticker price. I paid the deductible–$5000—and was happy to do so.
That surgery, which required tests, an ambulance ride to a bigger hospital (I live in a small town), and an overnight stay in that hospital, is considered bread-and-butter surgery—not all that hard, and not all that expensive.
I guided a friend through her breast cancer from diagnosis to reconstructive surgery, acting as her hospital partner. I have no idea what that experience cost her and her insurance company, but I do know that $30,000 would have seemed like a drop in the bucket compared to her bill for days in the hospital, two major surgeries, three different surgeons, and tests, tests, tests.
Think you’re relatively healthy? Good for you. Exercise a lot? Eat right? Take vitamins? Even better. Never been sick a day in your life? Wonderful.
Get the damn insurance.
Runner’s World just ran an article on Matt Long, a New York fire fighter and Ironman triathlete who was in top physical condition…the day a bus hit him and dragged him (and his bike) along its undercarriage. His excellent physical condition allowed him to survive the accident, but essentially every system in his body failed that day, not to mention the multiple broken bones, etc. It’s been years, and he’s just recovering. (Runner’s World profiled him for a variety of reasons, not the least being he just ran in the New York City marathon. This guy is nothing if not determined. Check it out here.)
All he had done was ride his bike to work that day. The bus driver, who was at fault, hit him while going around a corner.
And in that instant, Matt Long’s life was changed forever.
I’m sure you all know stories like that. And stories like that are what insurance is for. I don’t care if you’re twenty and just starting out, feeling marvelous, or if you’re sixty and have a mountain of pre-existing conditions.
Get health insurance.
Before you quit your day job, research health insurance. If you have a spouse who can include you on her plan, then get added in. Make sure the entire family is covered. If you’re single or your spouse isn’t insured, then investigate every option.
By law, most employers are required to keep you on their group health plan for at least 18 months after you quit/get laid off/are fired. That law, the Consolidated Omnibus Budget Reconciliation Act or COBRA, passed in 1985. It was designed to make sure that no one lost coverage because they lost their job. However, the moment you’re no longer employed, you must pay for that coverage, and it’s often hugely expensive. (I’m told that there’s a provision in the stimulus bill that changes this for some people. The information isn’t on COBRA’s public website, but it might be on the private part of the site. Since I’m not in need of COBRA, I didn’t research this part.)
It’s based on the premium your employer paid. As I wrote this article, I asked folks who’ve had experience with COBRA to let me know how much they paid per month, so I could give you a range. The responses I got ranged from $400 for a healthy single thirty-year-old to $2000 for a family of five. These numbers are per month, not per year.
COBRA is designed as temporary insurance—a bridge insurance to carry you from one job to another—not as a lifelong insurance. If you can get health insurance through another group like AARP or an organization affiliated with your freelance business, then investigate those.
Most insurance that you buy on your own will be much cheaper than COBRA. The key is to get the best price for the best coverage. And that can be tricky.
And look at my tips on shopping for insurance below.
But don’t make the jump to fulltime freelancing without health insurance.
Home Owners or Renters Insurance. You should have this regardless of whether you have a day job or not. House fires happen. Trees fall through walls. In my small town a few years ago, some doofus drove his car off an overpass and the car landed on another guy’s house.
Weird stuff happens. Be prepared.
But when you work at home, a house fire or similar disaster means you’ll lose your place of residence and your place of business. Make sure you’re covered.
Homeowners or renters insurance covers your place of residence. Your stuff, essentially, everything you use for leisure and for living. It does not cover business in the home. We’ll get to that in a minute.
But here are a few tips: Get a high deductible and pay for minor repairs yourself. Insurance companies often jack rates on frequent users of the homeowners policy. So if a tree branch cracks a window, pay for the repair out of your own pocket and don’t make a claim.
Take pictures or make a video of everything in the house at least once per year, and keep those pictures and/or that video off premise. You’ll be glad you did, because you’ll never remember what you owned after the crisis happens. The pictures are a great guide for doing an inventory, which the insurance company requires when you make a claim.
Get the appropriate insurance. If you live in earthquake country, get earthquake insurance. Yes, it’s expensive. But it’s better than losing everything—and the insurance company will deny your claim if your house is destroyed in an earthquake and you don’t have that earthquake rider.
The same goes for flood insurance. If you live in a flood plain (and so many people do), then spring for the very expensive flood insurance. If flooding is a distinct possibility in your area—if you live near a river, near a beach, or in a place with severe wet storms—then get flood insurance. Insurance companies hate to pay for water damage and will often deny anything they can pretend is water damage. (See what happened after any of the hurricanes in the south, but particularly after Katrina.)
If you don’t know whether or not you live in a flood plain, research it. Go to your county assessors office and ask. Look at historical flood maps. Plan that the 100-year-flood will happen next year. To you.
Yes, you’re gambling some money that you will need the coverage. Better to have coverage when the disaster hits than to say you wished you’d gotten that coverage.
Business Rider. You’ll need a business rider on your homeowners or rental policy to cover office equipment and your home business. For example, the computer that your kids use for games and homework gets covered in a disaster, but your work computer, the one that keeps the family in video games, won’t be covered at all without the business rider.
Unlike (say) flood insurance, a business rider is relatively inexpensive and is an essential part of a freelancer’s insurance package.
Liability insurance. If you’re running a home business that requires clients to come to you—like a law office out of your garage or a photography studio in your basement—get liability insurance. That way, when the innocent-looking old lady who slips on the stairs and cracks her rib decides to sue you for negligence, your insurance company will handle the claim. All you have to do is file the forms.
Umbrella policy. Get an overall umbrella policy to cover all sorts of disasters. Have it start at a million dollars or five million or whatever is the limit on your other policies. That way, you’re covered for catastrophic events, major lawsuits that run on and on for years, and other disasters that I can’t even foresee as I write this.
Business-specific policies. I’ve listed the policies that a freelance writer needs because I am one and I’m familiar with what’s needed. I added the liability insurance when we taught workshops at our home. (We don’t teach at home any longer, having graduated to a marvelous old hotel in the same town. Now the hotel handles the liability claims.)
Each business has specific needs, most of which I know nothing about. Find out what your business needs as far as insurance is concerned, and buy it.
Here’s the main rule on insurance: Never skimp. Buy exactly what you need or more. Preferably more. It’s better to be overinsured than underinsured.
Finally, here are a few tips on shopping for insurance.
First, don’t do it alone. The Internet has provided a variety of tools for buying insurance without an agent. Use those tools to research coverage.
Then talk to a series of insurance agents—not just one. Ask a lot of questions. Find out what kind of coverage you need and how much it will cost.
Remember that many insurance agents work on commission, so they’re often just trying to sell you product. Weed out the agents who are in the business only for the sale.
A lot of insurance agents love what they do and love the challenge of providing the best insurance possible for their clients. This is the kind of agent you want. You might end up with different agents for different kinds of insurance. If that’s what you need, then that’s what you do.
You need the best coverage for you, not the best coverage for their commission.
The most expensive insurance isn’t always the best, so make sure you do your research.
And know what you want. Figure out how you want to live if disaster strikes. If you suffer like Matt Long did, do you want long-term care or do you want to stay in your home? Can your insurance cover the multimillions it took to care for him? His could. But a lot of health policies limit the insurance company’s liability to $1,000,000. Often you need riders or umbrella cover to handle more than that.
Buy policies with the highest deductible that you can reasonably afford. That way, your monthly bill will be cheaper. But make sure you can afford that deductible.
Remember that you’re buying insurance for the occasion when disaster happens, not if disaster happens. So one year, you’ll have to pay that deductible, like we did that year of my emergency gall bladder surgery. It was a stretch, but we managed.
Reassess your insurance coverage annually. Things change. You get older, your health gets worse (or better). You change your business (like we did, moving our teaching outside the home). You get new equipment that needs better coverage. Your youngest kid graduates from college and has a full-time job with his own health insurance, so you no longer have to pay for his coverage. And on and on and on.
Insurance protects you in tough times—if you have the right coverage. So make sure your coverage is the best you can afford.
And remember: You must be able to afford insurance. If you don’t have it, you’re gambling with your career, your family’s safety, and in some cases, their very lives.
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Hi Mary, the MBO insurance I refer to is this:
Very different from securing your benefits through a chamber of commerce or association. That’s an option to research, of course, although make sure you understand the difference between a true group plan (like MBO — a real corporate group means everyone has the same rates, and aside from some exceptions around pre-existing conditions, everyone is automatically accepted) and a “group discount” plan, which is actually individually rated or age rated, but there is a theoretical group discount.
People out there who are trying to sell insurance will use the word “group” in deceptive ways. The thing to ask is, can my rates go up on just me?
In a real group, the rates are group rates. Jenny pays the same as me, I pay the same as Dave. [May differ by geography, and people will pay more to add dependents to the plan, of course.] If the rates go up next year, they go up the same for all of us, and hopefully not by much.
In an individually rated plan (group discount or no) your rates are specific to you, and if you make claims, your rates might go up more than someone else’s rates.
Some have morbidly called this a “death spiral” becuase the sicker you get, the more expensive your rates get.
Carrie, I can’t believe you had a policy that doesn’t cover the most common way people get hurt, and the leading cause of death for some age groups, car accidents. I think that’s nuts. Thanks for introducing the caveat, as it would never occur to me that an individual insurance plan would pull that kind of exception. Good for you in reading the fine print!
I’m not a benefits expert or a lawyer either, but I do recommend everyone shop for the absolute best program, and educate yourself. Even the healthiest people get hurt sometimes.
Another point that I ran into recently: Check your existing policies to make sure they cover what you think they cover.
I have individual health insurance for a reasonable price, but after looking it over the details learned that it doesn’t cover injuries from auto accidents. I was able to increase the medical coverage on my auto insurance policy to fill that gap.
I’m so glad I figured this out before I ever needed it…
I would reccommend buying flood insurance if your house is in the 500 year flood plain. I didn’t, and within three years my house flooded and I had to get a loan for repairs. There has been flooding in the 100 year flood plain in that area twice in the last two years.
I have no idea what MBO means, so if it covers getting group health insurance through your local Chamber of Commerce, I risk being redundant. That said, local business groups, not just writers’ groups, can be a good source for group rates.
And keep an eye on your state laws. Here in Massachusetts we have universal health coverage–which means if you don’t have private insurance and fall below a certain income level, you are eligible for state sponsored insurance at reduced rates (under $200 per month for full coverage, including pharmacy, for an individual). Everyone is required to carry insurance–the penalty for not carrying health insurance is loss of deductibles on your state income tax. Of course, the Commonwealth is having a hard time financially at the moment, so we’ll have to see how this works out in the long run. So, on the basis of health insurance alone, I wouldn’t make plans to move to what some call The Peoples Republic of Taxachusetts anytime soon.
Kris, great information!!! The only thing I’d want to add is that people need to be careful of any pre-existing conditions when they move from coverage to coverage. If someone with group coverage doesn’t allow their coverage to lapse too long (63 days is the Federal limit; in some cases, a state law might apply and be longer) they shouldn’t have issues having claims paid on those conditions that were present before the new insurance kicked in. However, there are lots of rules, so when securing new coverage, make sure if any restrictions might apply with the new coverage.
Great point, Debby. Research everything, folks, before you commit.
Another great post — I’ll tweet it now.
The statistic I’ve heard is that the number one reason for personal bankruptcy is uninsurance or underinsurance. That figure may be different now in the recent economic implosion, but it has been the truth for a long time.
As a public service announcement, I can echo the need for E&O insurance and other business insurance.
The cost of defending a lawsuit — even if you’re innocent — if you don’t have E&O as an independent consultant can be over 6 figures. You can be perfect, and still get sued.
Incidentally, MBO provides complimentary E&O and GL business insurances for independent consultants operating through the Portable Employer of Record program. The cost of those insurances, if you were to go get them on your own, might be around $5,000 a year. So just that by itself offsets the PER program cost. MBO Partners also has medical, dental, vision, life, and disability insurances. The only thing on your list here that MBO can’t help with is the insurance on your home.
I can attest to the medical expense that a healthy person can end up with. I had a relatively minor motorcycle accident a few years ago — $30,000 in medical bills! Had I not been with a really amazing insurance program, I would have been sunk.
And just last fall I ended up with sudden gallbladder issues. A week in the hospital and a routine minor outpatient surgery later, and the bills were over $20,000. This time I was on MBO’s insurance. I think my co-pays and deductibles were just over $1500 for the whole episode, thank goodness, but had I been uninsured or had some kind of cruddy discount plan, I shudder to think how my finances might be. It’s hard enough taking time out of work when something happens.
Thanks again, this is a great series. -Liz
Thanks, Liz & Steve. Good stuff.
Yep, long-term care is a big deal, and if you get a good rate locked in, it’s one of the best things out there, value-wise, at least according to our financial guy. It’s the first thing he had us buy when we started talking about investing.
Of course, the market ate about forty percent of my retirement when the investment houses went ka-blooie, and would that he would have seen that coming. Even so, my wife had bought into a 5% guaranteed return for much of her retirement just before the bottom fell out, so that is looking really good at the moment. Especially after all those folks making fifteen or twenty percent who sneered at her for being a wuss lost more than I did and way more than she did …
You know, you’re pretty smart for a white girl.
Thanks for that Kris. I just started studying for my insurance license (gotta be able to pay bills while I’m aspiring to write) and it really hits home how much you need insurance. I cannot stress long term care insurance enough. If you get hurt like Matt Long did, the hospital won’t keep you until you’re better, they’ll keep you til you’re stable then boot you out the door. Imagine trying to care for yourself when you can’t move anything. It piles up. When things get rough, insurance can be a god send.
Good point about long term care. I probably should have mentioned that as well. My ex-brother-in-law got extracted from the car he wrapped around a tree by the jaws of life. He was twenty-something, and spent the next year on his mother’s couch–because he could barely get off of it, and couldn’t care for himself. That was 1981-2-3. Things are worse now in terms of hospital care. So long term care is something you should also have.