Designing a Benefits Package for the Self-Employed

While being self-employed certainly offers many benefits, such as being your own boss and being able to determine your own schedule, it also may mean you do not qualify for the same benefits as your traditional employees do – and those may include crucial components of any individual’s long-term financial plan, like retirement savings plans and health insurance. Self-employed individuals may need to look to alternative options as a result and find a way to create their own benefits package to preserve their financial security and protect themselves against the unexpected.

But creating a benefits package for self-employed isn’t as easy as it sounds. There’s a lot to choose from, and balancing your budget and your needs can be an endeavor. As such, Hitchings Insurance has created this article, which contains an overview of the various benefits that a self-employed individual should consider, as well as some tips on how to choose the best options. We’ll cover everything you need to know, from health insurance to retirement savings to disability. If you have any further questions, don’t hesitate to reach out to a Hitchings Insurance agent!

Which benefits should self-employed individuals consider?

As is likely already apparent, self-employed individuals do not qualify for employer-sponsored health insurance or other traditional benefits. Therefore, they must purchase their own plans.

One major responsibility you must take on as a self-employed individual is creating your own benefits package to safeguard yourself, your finances, and your family. See the list below for the various types of benefits that self-employed individuals should consider:

Health Insurance

You are not eligible for employer-sponsored health insurance as a self-employed individual. There are numerous types of health insurance that are available for individual purchase, such as individual plans and Health Savings Accounts (HSAs). While group plans can be more affordable and have more extensive benefits, individual plans may be customized to meet your more specific healthcare needs and budget, and can extend to covering your family as well. They can be more expensive, however.

Health savings accounts, or HSAs, are a type of savings account that can be used to pay for medical expenses and are available to individuals who have a high-deductible health plan. The contributions that can be made towards a HSA are typically tax-deductible and may be used to pay for any out-of-pocket medical expenses.

When purchasing a health insurance plan, take into consideration:

Retirement Savings

When you’re self-employed, planning out your retirement savings falls to you alone. Retirement savings are an integral component of any individual and family’s financial plan. Here are some options:

• A SEP, or Simplified Employee Pension plan – An SEP plan is a form of retirement savings that permits small business owners and self-employed individuals to create their own tax-deductible contributions, on their own behalf, and on the behalf of their employees. Typically, a SEP plan will have a far higher contribution limit than an IRA. This makes them a better option for individuals looking to save more for their retirement.
• An IRA, or Individual Retirement Account. This allows individuals to save for their retirement on a “tax-advantaged” basis. Two types of IRAs exist Roth and traditional. Roth IRAs have contributions that are made with after-tax dollars, but all withdrawals are tax-free. Traditional IRAs have tax-deductible contributions and withdrawals are taxed as income.
• Solo 401(k) plans – A solo 401(k) resembles a 401(k) similar to what would be supplied for an employed individual, but is designed for self-employed individuals with no employees. Solo 401(k) plans have the capability to allow the individual to make tax-deductible contributions, both as an employee and employer and have higher contribution limits.

When considering a retirement savings plan, consider the contribution limits, maintenance/administrative fees, and tax advantages. Consider consulting with a financial advisor as well if you aren’t sure where to begin or want personal aid in selecting the best plan for your financial goals and your personal needs.

Disability & Life Insurance

Disability and life insurance may sometimes be included in an employee benefits package, but as a self-employed individual, you will need to determine for yourself whether these insurance policies are of benefit to you, your situation, and your dependents.

Disability insurance is designed to offer income replacement should you ever become disabled and be deemed unable to work. Self-employed individuals are not eligible for disability via an employer, so they will need to arrange coverage independently and determine whether they need short-term or long-term disability insurance. Short-term generally only provides coverage for up to six months, whereas long-term disability insurance policies offer coverage for a much longer period – usually until retirement.

Life insurance, on the other hand, offers financial protection for your loved ones if you should die prematurely. Self-employed individuals will not have access to group life insurance through an employer, so they will need to purchase their own insurance. They will need to consider whether to purchase term life insurance or permanent life insurance. Term life insurance provides coverage for a set period of time, such as 10-30 years, whereas permanent life insurance offers coverage for a lifetime.

The costs of both policies may vary immensely depending on your current health, age, your occupation, and lifestyle that you live. As a self-employed individual, the costs of being disabled or dying prematurely and leaving your family behind without your income are much higher.

Other Benefits

Other benefits may be worth considering as a self-employed individual, such as dental insurance, legal assistance, vision insurance, and more. While these benefits may not be as essential as the previous list, they can offer additional protection and enhanced peace of mind for you and your family.

Being self-employed may mean gaining some great advantages, like choosing your own schedule, having flexibility, and honing your discipline and hard work to create something amazing, but it can also lack the stability of full-time employment. That being said, great benefits are not something you need to sacrifice! Hopefully, this list has given you some insights on how to go about choosing a benefits package for self-employed. If you have any further questions, don’t hesitate to reach out to our representatives here at Hitchings Insurance.