The main areas freelancers can find financial protection include:
- Disability insurance
- Liability insurance
- Proper backup systems
As a freelancer, the responsibility is on you to protect yourself as much as possible. This includes your income, but it also means being mindful of your overall business operations.
Here’s how you can protect your business starting today:
1. Get a Solid Contract in Place
Contracts are a natural part of any professional business relationship. If you think about it, pretty much every area of your life includes a contract. When you sign a lease; when you buy a house, or if you purchase a phone plan, etc. There’s always a contract involved. It’s what businesses do to protect themselves.
As a freelance writer, a solid contract may include:
- An outline of services you’ll provide
- Shows a payment plan in writing
- Includes late fee clauses for “forgetful” clients
- Who owns intellectual liability ownership rights
- Confidentiality clause to protect both parties
A legit contract basically covers that both you and the client will do what you say you’ll do. It will outline the terms that you agreed upon in black and white so there’s no disagreement about it later down the road.
This is especially important for independent contractors like freelance writers when it comes to payment of services. You can contact a local attorney to draw up a template for your business. Or, you can purchase contract templates online through an attorney-owned business like The Contract Shop.
2. Get Disability Insurance
Your income is truly your biggest asset. What would happen if you become disabled and unable to work for the rest of your life? How would you take care of yourself or your family?
Disability can happen to anyone.
According to the Social Security Administration (SSA), one in four of today’s 20-year-olds will become disabled for 90 days or more before they hit age 67.
Disability insurance is a good idea because it covers a good chunk of your lost wages in the event that you can no longer work. You can opt for short-term and long-term disability, but long-term disability is the one that is most beneficial.
The difference between the two:
Short-Term Disability Insurance
- Covers 60-70% of your current salary
- Lasts about 3-4 months
- Costs between 1-3% of annual income
- Kicks in about 2 weeks after dr. confirms disability
Long-Term Disability Insurance
- Covers 40-60% of your salary
- Five years or longer
- Costs between 1-3% of annual income
- Kicks in between 3-6 months
One way to save money on these policies is to make sure you have a six-month emergency savings fund built-up. This fund would carry you through the event of short-term disability and cover all your bills. If your employer offers it and pays for it, take it, of course.
Long-term disability is a wise move if you rely on your income and don’t have a viable long-term savings account to draw from to cover your bills. Everyone, especially freelancers, should HIGHLY consider purchasing a disability policy,
A few ways to obtain it:
- Your employer – If you’re freelancing as a side hustle and still have a full-time employer, see what coverage they have. It’s usually a small percentage of your paycheck that gets deducted each week if you want it. Sometimes, if you’re lucky, your employer will pay for it in full.
- An association/union – Professional organizations, associations and unions often have a group umbrella policy that makes it cheaper for individual freelancers to purchase it through. If you’re a part of the Freelancers Union, you can get a steeply discounted rate through Guardian. Just read the fine print to make sure it will work for you.
- Purchase on your own – This is far and away the most expensive route to go. But you can shop around different companies like MassMutual, Guardian, Ameritas, and others to get a quote.
Important note: Don’t lie about your health status. The insurance underwriters will pull your medical records and review them in the underwriting process, so they’ll see your health conditions. Additionally, if they find out you did lie on your application, you may be denied future disability insurance coverage or not be paid if you file a claim.
Hire an Accountant
If you’re like me, even the thought of filing your own taxes is annoying. That’s why I made the decision three years ago to hire my own accountant. Sure, I could figure it out on my own, but I don’t feel like studying up on state tax laws because they change as often as the wind blows. Plus, a good accountant will make recommendations on your company’s tax structure as your business grows. This will save you THOUSANDS during tax time if you have someone who is watching your finances grow with your best interest in mind.
A few things to consider when picking an accountant:
- Do you want a specialist in your field?
- Do you want them to just file taxes? Or do you need a full-time accountant?
- Does the location of your accountant matter to you?
Most accountants can handle everyday bookkeeping and small business books as well. You’ll have to decide if you’re making enough to make it worth it to have someone take on your books full time. Until you’re making over six figures — or if you have multiple revenue streams — it may not make fiscal sense to hire on a full-time accountant.
You can find accountants in a few ways:
- Get social – Tap into your personal and professional social networks.
- Ask fellow freelance writers – These individuals know what you’re looking for because they, too, have to do bookkeeping or have hired it out.
- Talk with fellow local business peeps – Connect to a local small business group/organization and ask for referrals.
- Look into true pros in a directory – Check out Dave Ramsey’s Endorsed Local Provider program for individuals who have been vetted and held to high professional standards.
Back Everything Up
It’s every freelance writer’s worst nightmare: Your computer freezes or shuts down, only to never fire up again. It happens. I recently watched it happen to my husband — who is a civil engineering student — during finals week. It was horrifying, and luckily we had another computer for him to work on. Do not let this happen to you.
A few ways to do this:
- On a cloud
- External disk drive
- Flash drive (yes, they still exist)
Back everything up. Doing so will save you lost time and money — think of all the deadlines you could miss — if you’re smart and back up everything.
Purchase Liability Insurance
Ah, insurance. We all hate to pay for it, but we sure do love having it when stuff hits the fan. As a freelancer, I’ve only come across a few clients who have demanded I carry liability insurance. Many won’t, but it’s a smart move to carry it and protect your business. It protects writers in the case that they make a major mistake in the writing process — say in the creation of a pharmaceutical pamphlet — and the company gets sued for the error.
Two types of insurance to look at:
- Professional Liability Insurance – This insurance may also be called Professional Indemnity Insurance (PII) or Errors and Omissions Insurance (E&O). This covers mistakes you may make in the event that you’re sued due to a client or customer thinking your error may cost them financially. It protects your company and yourself against a claim that your services caused financial harm or failed to perform services
- General Liability Insurance – General Liability Insurance (CGL or GL insurance) will cover and protect your business in the event of allegations of property damage or bodily injury. It may also cover advertising injury claims from your business promotions. Depending on the coverage you want, you may need to add on Business Owner’s Policy coverage.
Always shop around when it comes to insurance. Get several quotes and pay what you’re comfortable with. The Freelancers Union has connections with insurance companies that include flexible payment options, too.
Protect Your Business Today
It’s so easy to put off the boring business stuff. But as an entrepreneur, you must put in the time to get your business affairs in the best working order.
If you don’t, it could come back to bite you in a very expensive manner.
Protect your business with the above steps as soon as you financially can. In the long run, it could save you from losing thousands of dollars or even losing your business. You know you’ve worked far too hard for it to happen.
What other ways have you protected your freelance business financially? Let me know and tag me on Twitter @seraine2.
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