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HomeResourceNavigating Your Coverage Options When Self-Employed

Navigating Your Coverage Options When Self-Employed

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Insurance coverage options protect against unforeseen life events that can reverse your accomplishments in moments. If you are a new entrepreneur and were formerly self-employed, you immediately lose benefits from covers like PTO, health insurance, and 401(k) plans. Such insurance once protected you from lawsuits, ensured your hospital bills were taken care of, and assured you of a safety net when you retire. However, when self-employed, you no longer have such benefits and are exposed if you encounter the eventualities. Know the covers available for an entrepreneur like you to have peace of mind when building your dreams.

Insurance companies often custom-make unique covers for individuals different from what they offer groups like corporations. Depending on your needs and business circumstances, you can opt for any of the coverage options below when self-employed:

Payroll Taxes

Payroll taxes become your sole responsibility when you are self-employed. Payment of taxes is a statutory requirement and can result in huge penalties and fines for late or missed payments. Federal and state tax authorities deduct a specific amount of taxes from the paycheck of each working adult in the US.

Two federal taxes on your earnings, known as the Federal Insurance Contributions Act (FICA), are applicable in the US. The two are the Social Security tax and the Medicare tax. The Social Security tax funds a benefit for retirees, persons with disabilities, and survivors of workers who pass on. The Medicare tax supports the hospital insurance portion of Medicare.

Paying the taxes ensures you comply with the law and receive an extent of coverage for your health and retirement. Your earnings determine how much tax you pay and are subject to various rates & caps.

Health Insurance

Health insurance is critical coverage for your life. You protect yourself from hefty hospital bills you may incur in case of an accident or a sudden illness that requires a hospital stay. In addition, outpatient visits can take a toll on your finances if frequent or if you have a family.

Health insurance packages are several, and you can opt for covers like inpatient, outpatient, dental, optical, etc. You can augment the coverage with a long-term life insurance policy that protects you or your family in your lifetime. The life cover protects you if incapacitated and has a death benefit.

Your family or dependents receive a payout in the unfortunate event of your demise. You can opt for a permanent life cover that lasts your lifetime or a long-term one, e.g., a 20-year policy. For the latter, obtain quotations for 20-year term life insurance rates from credible providers to get protection.

Liability insurance

Liability insurance self-employed

Liability insurance protects you from claims resulting from injuries and damages to people or their property. For example, a customer sustaining injuries at your premises or damaging their items when in your possession. The law requires you to compensate for such losses, failure to which they can take you to court.

If you have liability insurance, the cover takes over compensation for such unforeseen circumstances. The events can have devastating effects, especially for a new business still trying to stabilize revenue generation. Assess your business to know the aspects that present the highest risk probability and adequately insure it.

For example, if your business involves operating machinery, it increases the likelihood of accidents for people. Ensure that all third parties get adequate coverage.

Self-Employment Tax

Self-employment tax is additional taxation to the income tax if you are an entrepreneur. The tax only covers social security and Medicare taxes. Discern the net profit or loss in your business to determine if you are subject to paying the self-employment tax. Know the threshold of profit that compels you to file the tax return for your business type.

The self-employment tax does not have an age limit, and you must pay even past retirement age. In addition, you continue to pay taxes if you benefit from Medicare and Social Security funds. In this case, it does not work like the typical insurance where premium payments stop when the benefits kick in. Your tax obligation only terminates when you wind up the company.


The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a plan that allows you to keep your insurance coverage from your former employer after you leave the company. Employer plans typically have more extensive benefits, and you will likely save on out-of-pocket medical expenditures. However, there is a cover limitation of up to 36 months post-employment.

Also, note that you may not pay the same rate as your previous employer for COBRA, and you will have to contend with adjustments they make in the contract. You do not have the leeway to change the coverage features. Such a cover is convenient when stabilizing your business, allowing you a grace period before taking over major business expenditures.

Selecting Appropriate Coverage

Navigating options for insurance when venturing into self-employment can seem daunting at first. With time, you figure your way and make better choices. Refrain from being tempted to do away with insurance because of the costs. As a self-employed, you are more vulnerable to disruption, requiring a safety net to fall back on if a disaster strikes.

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