What types of insurance do I need if I’m self-employed?

More and more Americans are ditching their office jobs and working for themselves these days. Who could blame them?

You set your own hours. You decide on your own projects and methods. You choose your own team. And you’re not alone - about 15 million Americans currently work as self-employed professionals, and that figure might almost triple in the next two years.

Yet not everything in business and life can be controlled or predicted, right?

On the downside, what if a client is hurt on your construction site? What if you’re in an accident that leaves you permanently disabled? It doesn’t happen every day, but it can happen to anyone - and it could happen to you.

But some things in this life aren’t worth leaving up to chance. Like your life, your family and your business. That’s why you need insurance. You’ve worked too hard to leave it all to chance.

But what kind, how much coverage and, uh, how do you even know? Here are four types of insurance that give you peace of mind.

So when you’re thinking about insurance as a self-employed professional, your health has got to come first. There are two things self-employed professionals should know:

There’s no denying it. You need health insurance. That’s right. And if you get injured? Or sick?

As a self employed professional, you aren’t splitting premiums with an employer any more. When you pay the whole premium for the policy yourself, your health insurance costs can be an unwelcome surprise.

This is the good news, the silver lining in all this. Because you’re self-employed, you’re eligible to write off your health insurance premiums when you file your taxes. And if you work with a tax pro? They’ll help you get the most deductions to save you even more.

So how can you cut down your health insurance costs? You’re working hard on your business, and money’s tight.

But if you want one of the best ways to save on your health insurance premium, it’s simple - get a high-deductible health plan (HDHP).

But if you get a HDHP, yes, you have to pay more before your insurance kicks in. But your monthly premium will be lower. So if you have a good emergency fund, it could be a good move. Keep a full emergency fund so you’re covered if you break a leg while dancing.

If you have a high-deductible health plan, you can open a health savings account (HSA). That means your money isn’t taxed, and it can go toward out-of-pocket health care expenses. And it makes a HDHP an even better deal!

Get quotes from an independent insurance agent. They’ll explain all your options and help you find the best deals and the most coverage for your budget.

Replacing Your Income if You Die

Let’s talk about death. If you have family counting on you, you need to get term life insurance. If the unthinkable happens and you aren’t around to provide for your family, it’s a quick, easy way to make sure they aren’t struggling to buy food or pay the utility bills after you’re gone.

Life insurance has one simple job: replacing your income if you die. Nothing complicated there. So make sure the one you choose does that.

Rule number one. You should get term life insurance, not whole life insurance.

Term life is going to cover you for a set number of years and pay your family if you die during that time. And it costs a fraction of the price of whole life and other types of insurance that carry cash value. It’s a much, much better value for your money.

One of the biggest misconceptions is that you’ll need life insurance forever. But if you get rid of debt and build wealth, you won’t. More on that soon.

Rule numero dos. Get term life insurance that covers you for 10 to 12 times your yearly income.

But income as a self-employed professional will change every year. There’s no way of predicting what next year will be like. It’s basically like guessing who’s going to win the Super Bowl in five years.

You should figure out an average of the money you’ve made every year since you went into business. You can do this by adding up the money you earned every year since you hung your shingle out. Then you divide it by the number of years you’ve been working for yourself. That can give you an estimate of your income each year, but it isn’t precise.

Why should you get term life insurance that will cover your family for 10 to 12 times your yearly income? It makes sure they’re taken care of. Of course, the death benefit should be enough to replace your income and take care of your family, right?

Rule number three. Keep your term life insurance until your kids are old enough to take care of themselves or until you’re financially independent.

Term life insurance can run 10 to 30 years. Get 15 or 20 years for the best coverage. Here’s an example. Take a 30-year-old dad of a toddler. He gets a 20-year policy worth $500,000. And he invests diligently. When the policy runs out, so will his need for life insurance, because he will be financially independent!

And don’t forget! Every few years, check the coverage on your life insurance. Family size, age, any number of things can change in your life and then change your need for insurance.

Lawsuits and Injuries

And what about business? For everyone working for themselves, there’s a risk. Not just of injury but maybe even a lawsuit, whether you’re a plumbing contractor or a freelancer.

You can’t keep all the risk on your shoulders. So for all you people running your own show now - or dreaming of doing it in the future - let’s get a few definitions straight.

General liability insurance basically covers lawsuits and injuries that come from your everyday run-of-the-mill job activities. Like a slip and fall in your coffee shop or breaking a customer’s vase while cleaning. Or if you get sued for slander, it can cover that. You can buy general liability insurance by itself or as part of a business owner’s policy.

You can make a big mistake at work. Everyone does. Professional liability is also known as errors and omissions insurance (E and O insurance). Professional liability insurance can help pay the cost of lawsuits for people hurt by your services or advice. General liability insurance usually covers things like a physical injury or damage to a person or their property. Professional liability covers financial mistakes. If a client sued you for a financial loss, professional liability could cover it.

A BOP bundles several types of insurance - usually general liability among other things, and offers them at a discount. It may also include protection for your business property, equipment and bills if you have to close temporarily. BOP is a bulked-up general liability for people in business.

It’s not insurance, but here’s an extra tip. An accountant will help you stay on top of your books, payroll and taxes. It’s one less thing to worry about that can get messy really fast if you don’t keep on top of it.

If you’ve got even one employee, you’ve got to carry workers’ compensation insurance. It generally covers injured workers’ lost wages and medical and rehab bills.

What kind of work you do will determine what type of policy you can buy. For example, someone working in construction may not be able to get a business owner’s policy to cover them. You might be better off with general liability coverage.

Sit down with an independent agent and talk over what you need. They can take your information, give you several quotes, and help you find the best policy at the best price.

Long-term Disability Insurance

Finally, if you get hurt and can’t work, you need disability insurance. Having disability insurance ensures your paycheck isn’t wiped out by an unexpected accident or illness.

But more than 51 million working adults have no disability coverage. And it’s a huge mistake.

More than one-fourth of today’s 20-year-olds will likely miss at least a year of work due to disability before they retire. How would you cover your bills?

There are short-term and long-term disability insurance. Short-term usually lasts three or six months. But don’t buy this. Make sure your emergency fund is full and you’ll be covered.

But you need a disability insurance plan that’s longer-term. Long-term disability insurance kicks in after short-term ends. Get a policy that pays you 60 to 65 percent of your expected income.

Get the kind that will pay you if you can’t do the job you were trained for. That’s own-occupation. It’s the most flexible of all policies.

Say you’re a dentist with your own practice. Then you break your hand on the weekend trying to repair your sink. Now you can’t work.

But with an own-occ policy, you’re paid a percentage of your expected income every month. Even while you’re training for a new career!

Riskier businesses generally pay more for disability insurance. If you’re part of a trade organization, they might offer a group rate.