What kind of insurance should an indie have?

Hello June,

How are you? I'm glad to have found your site. It is a great asset to us indies.

I have one question I need to ask. I need indie insurance. How do I go about getting this insurance? Is this general liability insurance or something else?

Secondly, how much does sufficient indie insurance coverage cost? Thanks for your response in advance.

Tameko

Happy New Year, Tameko!

I am pleased that my site is of value to you. Thanks.

Asking how much insurance costs is similar to asking how much will my taxes be? Many factors are part of the calculation.

It depends on the kind of insurance and how much insurance you want. For instance, a policy covering a home valued at $300,000 is probably going to cost less than a policy covering a home valued at $500,000. Liability coverage for a graphic designer who never meets with clients in her studio will be less than that for a massage therapist who actually touches the body.

Insurance covers different assets, liabilities and situations. For instance:

** Liability insurance generally covers injury to another person. For instance, if a client walks into my office and trips.

** Property insurance (often combined with liability insurance) covers damage to someone's property. For instance, you break a window while cleaning it.

** Errors and Omissions policies cover mistakes in your work that impact your client.

** Workers Compensation covers injury to an employee.

** Media Liability insurance will protect you against lawsuits over what you say in your publications.

** Health insurance covers medical costs.

** And the list goes on ... life ... disability ... long term care ...

I think taxes are easy. Insurance is difficult. Think about what you need protection from. Then start by having a conversation with the insurance agent who handles your auto or home or health insurance. He or she may be able to direct you to other insurance agents. Also check with local business organizations for recommendations. I do not recommend NASE -- the National Association for the Self-employed.

More of my posts on insurance are right here insurance .

Also, for those of you who do not subscribe to my eLetter, Ways Through The Maze check out this one #32 for info on the new rules on health insurance deductions for indies.

-- June

Where To Get Health Insurance

June --

Psychotherapist since 2000. I welcome your comment

After COBRA, where do I find the best health insurance for the Indie???

Kathryn
Rolling Hills Estates, CA

Dear Kathryn,

Taxes are easy. Insurance is difficult! Start by asking for a recommendation from the insurance agent who handles your auto or home insurance. He or she will know the recent changes in your state and which coverage is the best for you.

I do not recommend NASE -- the National Association for the Self-employed.

-- June

Don't abandon sole proprietorship. There are many benefits.

June --

I am a Computer IT consultant 4 years. Just came back to being a contractor again after several years of W2. I have a TIN and a name but never did the LLC. At age 60 I am most interested in what structure will allow me to put away the most retirements money and allow me to deduct my HUGE monthly health insurance premiums.

Thanks,
Jeri
Eden Prairie, MN


Dear Jeri,

You have a "TIN." For the acronym-averse, that a Tax Identification Number. Also known as an Employer Identification Number [EIN] or Federal Identification Number. They all refer to a business's identification number, similar to a person's social security number. [There are other purposes for an EIN.] More on tax ID numbers here EIN-employer identification # .

An LLC is a Limited Liability Company. There's a lot of info on LLCs right here business entity -- LLC. Did I say a lot? Well, yes, really a lot. Read those posts. In them you will learn that an LLC is a legal way of forming your business. An LLC does not determine tax structure as does a corporation or a partnership or a sole proprietorship.

The pension laws were changed a while back so that now a sole proprietor has more of a choice on pension structure than does an employee. For instance, you may choose a Defined Benefit pension, that will allow you to contribute enormous amounts to your pension. Example: $100,000 contribution on $350,000 net self-employed income. A more modest and more flexible plan is a UNI-k. Think of it as a one-person 401-k.

Health insurance premiums are deductible as an adjustment to income whether you are a sole-proprietor, partnership, or S-corporation. Deducting them as a C-corporation is a bit different.

Think things through carefully, and get as much accurate information as you can before you abandon the advantages of self-employment for a different structure.

Best,

June

Media Liability Insurance

Hi June,

Great information!

1. I don't have your book yet, Self-employed Tax Solutions. If I purchase edition 2 then I don't need edition 1, right?

How different is this book from the Creative Visual Artist version? I am a freelance B2B Technology Copywriter - Would I want to also or instead look at the Creative version?

2. I currently am a sole proprietor. I am looking for liability insurance. Specifically for copyrighting laws/infringement, blogging, any of the web liability. Does your book cover this type of Insurance? If not can you provide me with a source that I can research?

Thank you for your time.
Deb


Hi Deb,

Glad you like my info. Please tell your indie friends and colleagues . They need as much help as they can get.

This post Self-employed Tax Solutions 1st Edition explains both editions .

Tax Solutions for Creatives is a CD not a book. Indies tell me the CD is really helpful and that just listening is so easy, not intimidating.

My book explains the different types of insurance. It's basic info. Anyone who presents advice and information to the public faces the potential of having someone misinterpret what is said or written. That presents the possibility of a lawsuit. Sounds as if you are seeking media liability insurance. It's a kind of errors and omissions policy and is hard to find and very expensive with quotes starting at $2,500 for sole proprietors. Please, if you find more information from your insurance agent about this kind of insurance, let me know.

Best,
June
[revised 1/15/10]

Need to feed the kids? Freelance AND work a job.

June,

I was reading your site. Great info!

I have a question. I've run my own business for almost four years. Due to the economic downturn, I've sent my resume out a few places. I have a job offer that I am considering with a firm...I don't really want to work for someone else, but the kids need to eat.

A few questions:

1. I intend to keep my other business going...I have a few commitments and can't shut it down completely. Will having most of my income W2 prevent me from taking normal business deductions?

2. The job offer is ok, but there are no benefits at all. I want to keep deducting my health insurance premiums through my business. They say there is some kind of group plan I can get into, but I'd have to pay 100% of the premiums...so they pay nothing. Can I still deduct health insurance premiums through my business?

Please advise,
Steven
Albuquerque, NM


Dear Steven,

Glad you like my site. Thanks for letting me know.

Yes, you may work as an employee as well as freelance as a self-employed. Amount of income from each is not a factor as long as you are trying to make money as a self-employed. You may still deduct all your indie business expenses against your self-employed income even if it results in a loss. That loss would be deducted from your W-2 income.

You may not deduct health insurance premiums as a self-employed if your employer provides a group plan, even if you pay 100% of the premiums. If you continue to have insurance on your own as a self-employed you may deduct the premium cost as an adjustment to income on your tax return.

-- June

Another Misinformed Tax Pro about Husband & Wife Business

June --

My husband has been self employed architect since 1991.

Since its inception, we have had a small business health insurance plan NOT INDIV with me as one employee.

Each year I issue a small paycheck to myself for my bookkeeping services and pay payroll taxes on it. The cost of the premiums has always been deducted as a business expense a NOT PERSONAL DEDUCTION.

For reasons unknown to me, our accountant of 3-4 years abruptly declined to list our health insurance as a business expense this year although nothing has changed. He just said that unless my W2 equals the annual premium, then forget it. I do not wish to change the way I file my health insurance after 15 years? What gives?

Rosemary & Michael
Culpeper, VA


Rosemary --

"What gives" is that your accountant was doing it wrong for 3 or 4 years and didn't want to tell you.

Often health insurance plans will call a spousal assistant an employee. However, just because you have a group health insurance policy that treats you as an employee does not make you an employee.

You cannot deduct health insurance premiums from business income unless that health insurance is provided by the business for a legitimate employee.

Here's how it works:
Husband [or wife, doesn't matter] has a sole proprietorship. Wife is made an employee via the registration and filing of all federal and state employment forms. Wife is paid by check or direct deposit from the husband's business.

Husband sets up health plan benefits for his employee. It's called a Plan 105. This must be formally done. You can get more info on Section 105 from BizPLan at http://www.tasconline.com/products/bizplan/ or I can give you the person to contact. [I have no quid pro quo on this arrangement.] There is also a lot of information on my blog in the category payroll -- spouse as employee .

Once the plan is set up all medical insurance as well as medical expenses for the entire family may be a business deduction.

If your accountant hasn't told you all this -- in greater detail than I can do here -- or does not say he will research and get back to you -- then fire him and get a new accountant!

1/2/11: A new regulation is in effect regarding the deductibility of health insurance premiums by all self-employed. This deduction is not for spousal employees only. So be sure to talk with your tax pro about this.

Best,
June

JW Revised 1/2/11

Deducting Health Insurance Premiums

Hi June,

Love the site but I didn't find what I was looking for. my husband has recently started his own cabinet business. We are still in the making and will probably set up as a sole proprietor with wife as employee.

I am currently employed full time and have medical insurance coverage. I have included him on my plan since he left his job to become self employed.

Am I correct that we cannot use the insurance payment deducted out of my pay as a company expense/deduction? My insurance is covered by my employer but I have to pay for his on a monthly basis,

I have read so many different scenarios but am still confused.

I appreciate your help in advance.

Susan from Goldsboro, NC


Hello Susan,

I'm pleased you like my site. Thanks for letting me know.

I assume then that you have already read all the posts on health insurance. If not check out the category insurance -- health/medical on the left. You will see that you may deduct health insurance premiums only if you are your husband's employee and an employee medical benefit plan has been set up for you.

Best,
June

Indies Need Health Coverage

The American jobs market has changed – more than that, it has been transformed – since Bill and Hillary Clinton’s unsuccessful attempt to put together a national health plan in the early 1990s. In the ensuing years the independent professional – in sheer numbers, although up to now not in political power – has boomed. No longer should the indie be an overlooked factor in US tax law or in labor or health benefits strategy.

Health coverage will certainly emerge as an issue in the national elections of 2008. It’s vital for indies to make themselves heard in the coming debate. We indies need health care coverage solutions that are in sync with our workstyle.

I’m going to have more to say on this topic in the coming months. For a brief but interesting look at such matters, check out Home-Office Politics, Matt Bai’s article in the November 4 issue of the New York Times Magazine. If no longer available online you may get a PDF version here.

Indie Health Insurance -- somebody is trying to help

Take a look at the Small Business Times based in Milwaukee. Our representatives in congress are trying to help us self-employeds with health insurance.

Self-employed need level playing field in health care
The "Equity for Our Nation's Self-Employed Act" (H.R. 3660) was recently introduced in the U.S. House of Representatives by U.S. Reps. Ron Kind (D-Wis.) and Wally Herger (R-Calif.) to help put self-employed businesses on equal footing with large corporations by permitting health-insurance premiums to be deducted from both their income and payroll taxes .......

Ron Kind's Web Site: www.house.gov/kind.
And, Wally Herger's Web Site: www.house.gov/herger .

Let them know that we support their efforts.

Dental Insurance from Frelancers Union

Freelancers Union has worked for a long time to bring its dental insurance nationwide, and now it's here! Freelancers in all 50 states will be able to get dental coverage (Freelancers Union usual eligibility requirements apply).

Indie Health Insurance Deduction: An unfair regulation!

Hi June,

I have some questions about deducting health insurance premiums:

Would COBRA payments qualify as health insurance premiums I can deduct as a an indie? (I am not talking about the personal deduction which must be 7.5% of income.)

If COBRA does not qualify, would another plan qualify given the fact that I do have COBRA available to me and there is a rule that you can only deduct if another plan such as an employer or spouse's employer is not available to you?

Thank you so much, Alexis from Santa Monica, CA


Hello Alexis,

Often getting the same tax advantage for indies that goes to employees is just a matter of research and interpretation. Not so with this situation. It is unfair! Even the IRS researcher that I spoke with this morning agreed with the assessment of the indie getting the short end of the stick.

A little background for my readers: If a self-employed's business has a profit [not a loss] then health insurance premiums may be deducted on the tax return as an adjustment to income -- also said as "deducted on the front of the return." This placement for the deduction saves much more tax than taking the cost of health insurance premiums as a personal deduction inside the tax return.

You cannot deduct the premiums on the front of the return if you were eligible to participate in a health plan subsidized by your employer or your spouse's employer.
*** Here's the scenario:
You have a job as well as an indie business. Your employer offers you a health plan inferior to one you could get on your own. You purchase your own health coverage. You cannot deduct the premiums that you pay on the front of the return. The deduction gets stuck -- and often lost -- inside your return.

The same applies to COBRA. COBRA came about in 1985 and requires most employers to provide group coverage to terminated employees for up to 18 months. [That's an oversimplification, but is accurate.]

*** So here's another scenario:
Your employer fires you. You start your own indie business. You buy your own health insurance, superior to the COBRA offer. For 18 months you cannot deduct the premiums on the more advantageous part of your return. There's a good chance you get no deduction at all.

Thanks for the question Alexis. I think it's time for all of us to take a careful look at the various healthcare plans offered by the current candidates.

Best,
June

Husband-Wife Business and Insurance

Hi June,

Welcome back! I have been checking your blog and hoped you were on vacation and not ill.

I started my own business June 1st. I sell noni juice, run a canister route for charity and do some janitorial work. Problem was my husband had no job. (We worked together for a company and quit together.) I got a tax consultant/accountant and he recommended I hire my husband as an employee.
I know you mentioned doing just that in your book, Self-employed Tax Solutions.

Now here's the problem....For the janitorial work I have to have liability insurance (not that big a deal) but since I hired John the insurance company says I must have a workmens comp policy to cover him. This is a big deal as I am not making very much money and it costs $1,014.00 per year. I can pay quarterly, but still gee wiz!

Now finally for the question, can we save money by becoming partners? Is co-ownership just another word for a partnership? As things are set up right now John is only my employee for the janitorial work which is not bringing in much money. We would like to split profits from all 3 ventures 50/50. What would you recommend?

Thank you for your time June, sincerely, Yvonne(in Illinois)


Hello Yvonne,

First, try to combine all you business efforts into one business if at all possible. Perhaps you provide a variety of general business services to other small businesses. That will make recordkeeping much easier because you won't have to allocate expenses between two or more places -- for instance a run to the post office or a supply store, or the purchase of a computer.

Liability insurance generally covers injury to another person. For instance, if a client walks into my office and trips, my liability insurance would cover that. Do you understand why you have liability insurance for yourself? Whether to have liability insurance is generally a choice you have.

Property insurance [often combined with liability insurance] covers damage to someone's property. For instance, you break a window while cleaning it.

Workers compensation covers injury to an employee. It's the state [Illinois, in your case] regulation/law that determines whether you must have workers compensation. It is not determined by insurance companies. In some states you are not required to have workers comp if your spouse is your only employee or if you have fewer than three employees. In New Mexico it is not required for a spouse. In New York it is. If it is required, some states will sell you the coverage directly and/or you may choose to purchase it from an insurance company. The cost depends on the wages paid and the kind of work. More hazardous work means a higher insurance premium. You need to get more information from someone/someplace other than your insurance company. When I researched this for a New York client it took umpteen phone calls to find the right department and get a correct answer. I hope Illinois is more organized.

Co-ownership is just another word for partnership. And you don't want that type business structure. Sole proprietor with spouse as employee is the most tax advantageous structure for a husband and wife business. As I've said to a number of folks who have emailed me: I am working on a publication with a complete explanation. There's just not enough time finish it!!! Anyway, with your honey as your employee you may give him a medical and dental plan for him and his family -- that you! and kids if there are any -- and a pension. All those costs would be deducted from your business income. Not so in a partnership.

This should point you in the right direction.

And, thank you so much for your generous comment about my book on Amazon.

Best,
June

Health / Medical Insurance

June --

I'm new to the life of an 1099er and would like to know your opinion in general on medical insurance rates and shopping around.

Chris from Plano, Texas


Hello Chris,

Everyone I spoke with said the same thing. Start with your existing trusted agent that you use for other insurance. Ask for a recommendation. Often the term agent and broker are used interchangeably but usually they are defined as: An insurance agent works for one insurance company; A broker looks to many companies to find coverage for you.

You can also check with fellow indies. You don't say what your profession is so I can't suggest specific organizations or guilds.

Do check with the Freelancers Union. It offers health insurance not only to indie New Yorkers but is expanding to other states and also has a lot of information on health insurance.

Please let me know if you find other good sources.

Best,
June