Find out ways to protect your freelance business and income from catastrophe—disability, long-term illness, an emergency, disaster, theft, liability issues—and how to minimize the effects.
- Family member being paid to be a caregiver
- Long-Term Disability Insurance Vs. Long-Term Care Insurance
- Types of life insurance policies
- Freelancers Union
Hi, and thanks for tuning in. I’m Colleen Gratzer, and in this episode of Design Domination, I talk about ways you can protect your freelance business and income from catastrophe—disability, long-term illness, an emergency, disaster, theft, liability issues—and ways you can minimize their effects. If you are your business or you’re the breadwinner—or both, this information is vital.
At some point, life throws us curveballs. Some of them could potentially take down your business or have other negative effects. If you’re prepared, you may face little to no repercussions. I know no one wants to think about these things, but what’s worse—thinking about the unpleasantness now or not being prepared if something does happen later on?
Disability and Illness
First, let’s talk about disability and long-term illness. Anyone is prone to suffering a disability at any time. It could be temporary such as a broken arm, longer term such as cancer, or permanent such as partial paralysis from a stroke.
A broken arm is no big deal in the grand scheme of things, but you’d need to be able to still use the keyboard or a tablet to work. Maybe even a left-handed mouse. That would be temporary but you would not be able to work as quickly. You might have to think about hiring help temporarily to get work done.
But what if you were diagnosed with a long-term illness that makes you tired, not up to working and requires ongoing treatments? Those would cost you time and money. You wouldn’t be able to take on as much work.
And what if you suffered a permanent disability that prevented you from ever being able to work again?
This is where having disability insurance helps. Disability insurance replaces a portion of your income in the event of a disabling illness or accident. Some carriers may offer short-term and long-term plans, where they pay out a certain percentage of what you usually make. That percentage might be 60% or 70% of your income. It might be less depending on how much coverage you want.
Some carriers offer riders to their policies, where you pay more to make sure you’re covered if you can’t do your usual work. They call this “own occupation.” In other words, some plans, without that, might say, “Oh, you can’t work as a designer right now? OK, well, it seems you could go flip burgers or work for a call center instead.” And probably making less money. So instead of collecting benefits, you have to go get a job doing something else, something you might hate.
Another rider—and, again you usually pay more for riders—is the option to increase your benefits if your income increases. If you’re making $40k right now, but later you make $80k and become disabled, without that rider, you would only get a benefit (meaning a payout) that was based on that $40k. So if your lifestyle and spending habits have changed in that timeframe, and your policy doesn’t base the benefits on that more recent income, you’d be in for a rude awakening.
There are also riders that give you a cost-of-living increase so that if you do get paid a benefit, it increases with the cost of living.
I’ll be straight. While disability insurance can help protect your income, it can be costly. It’s cheaper the younger you get it, the higher benefit you get (again, meaning the payout in case you needed to use that insurance) and how many riders you may get add to the premium.
I will also tell you it can be a very frustrating process—at least mine was. It took me 10 whole months to get disability insurance. I even had the help of a broker. She was equally frustrated.
First off, at least in the U.S., there are only so many companies who will insure someone who works for themselves. I don’t know if this has changed, since it was more than 10 years ago when I went through the process.
But if you also work from home for yourself, that narrows the pool of providers quite a bit. Again, at least it did in my experience.
So I ended up with three to choose from, and I got denied by either all three or two of them. I can’t remember. I know at least two denied me right off the bat.
I didn’t even have any big medical issues. They did a medical exam, they reviewed medical records and all that. I think some will check your driving record and credit report.
But anyway… One company denied me because I had had water on the knee. Water on the knee! I mean, my legs could be amputated and I could still work, but water on the knee that I had had for a short time?! That’s crazy.
Another one denied me because a nurse had once noted in my chart that I had told her I was stressed. So they classified that as a mental disorder. I mean, you can’t make this stuff up.
Apparently, these companies look for ways to not cover you. You’d think they’d be in business to get customers…
I don’t recall now if I had to just go with the third company due to having no other choice. I think they may have denied me because I worked from home. You better believe I made appeals to them all because this was nonsense. But the others didn’t budge, so I ended up being left with one option.
At one point, my broker suggested that I pay to rent office space somewhere so I wouldn’t be working from home. I was like, “That’s crazy.” I am not suddenly going to start paying for office space just so I can get disability insurance.
I asked my broker why they would care if I worked from home, and she said because they cannot tell if you are faking a claim, like if they were to come and spy on you for a bit.
I recommend consulting with a broker or your insurance company to find out what would be best for you in your present situation.
Now what if the worst happens to you? If you are your business, then your business goes kaput. If anyone is relying on you for income, such as a spouse, would they be taken care of financially in the event of your death? Would they be able to pay the mortgage or rent, or would they be struggling to get by and need to move?
You may have substantial savings, but how long will that last? This is where life insurance can help.
I’ve always found life insurance to be super confusing, no matter how many times it’s been explained to me. There are so many types:
- whole life
- universal life
- variable life
- term life
Like with disability insurance, the younger you get it, the cheaper it is.
Now let’s say someone in your family (in your household or otherwise) becomes disabled or sick long term? You may suddenly find yourself being a full- or part-time caregiver for many years.
You could end up exhausted—mentally and physically—with little time left for work. You may be driving across town to help a family member, or they might be living with you already or they might have to move in with you. You won’t be able to work as much and you may end up getting sick temporarily, like a cold, from the stress.
Your family member may or may not have planned for this situation, so it may all fall on you. You may or may not be able to afford to pay for someone to help.
You may be eligible for a government program that pays you to be a caregiver, or your family member may be able to help you financially in exchange.
There may be some local community organizations that help with care during the day. I have a client who offers programs like this, and they have a bus service to bring folks to and from their day programs, and they partner with the county to provide rides to and from medical appointments.
Services such as those would allow you to get some time back, so that you are able to work.
Disaster and Theft
Now let’s move on to disasters: floods, fires, hurricanes and so forth. They could not only cause injury or death, but they could potentially take down your entire business if you aren’t prepared.
Something could happen to your computer equipment or home office due to damage or loss—or even theft. You’d need to replace everything. The proper insurance can help with that. You may say, “But, Colleen, I have renter’s or homeowner’s insurance.”
News flash: they may not cover equipment for business use, including for freelancing. So check with your insurance carrier. It’s usually cheaper to get that type of policy from them too. It’s called general liability insurance, or CGL or GL.
Insurance or not, these situations can be alleviated with a good backup strategy. First off, if you don’t make backups of your computer, run, don’t walk, to the nearest store or website to buy an external drive. External drives are cheap. It will cost you much more if you don’t back up.
Think if you were working on a huge job at the time disaster strikes. The client just gave approval for it to go to the printer, but your computer is damaged and you have no backup. You’re going to have to recreate the job from scratch. That’s going to cost a lot of time. That could cause them to miss a deadline and possibly even lose revenue. You could potentially even be sued for that. We’ll talk about that later…
A backup is only good when it’s working and available to you. It could get destroyed by water, fire or impact (even just by dropping it accidentally). I highly recommend keeping drives in a place in your home or office where they would not become damaged by fire or water, such as a special type of safe made for these reasons.
Another thing you could do, and I’ve done this, is keep a backup off-site, like a safety deposit box. I’ve made backups to two drives and rotated them regularly between my home office and the safety deposit box. If you can’t do that, think of where else you could store them that would be safe form damage and convenient for you.
But something else to consider is that backup drives can fail. So backing up to more than one drive is good practice.
Of course, there’s always cloud backups too. I don’t like them because you’re not in control or possession of them, and you need to be able to get online to access them. What if the power is out?
For replacement purposes, it can help to take pictures of your equipment and keep receipts for those items, so that you can prove to the insurance company what you had but also so you don’t have to remember it all either.
Now, a little while ago, I mentioned general liability insurance. That not only covers your business equipment but it protects your business from claims relating to injury and damage to someone else’s property. If you have a home office and see clients there, I’d look into it to make sure you’re covered. A client could potentially fall on an icy patch in front of your house during winter and come after you.
Let’s talk about liability, specifically what could happen if you make an error.
For example, maybe the client just paid to print 100,000 copies of a brochure you designed for them, but the phone number or URL is wrong. If they didn’t catch the error during the proofing stage, that’s on them. But what if you accidentally made the error in the file after they had approved a proof that was correct?
Professional liability insurance, also called errors and omissions (E&O) protects you in this situation. Also, some clients may actually require you to have it, although I believe I’ve only encountered that twice in my career.
It may also defend you even if you haven’t made a mistake, like if you’ve been faced with unfounded accusations by a client.
This type of insurance is one that you need to keep in force for continued protection. My understanding is that if there’s ever a lapse in coverage, you wouldn’t be protected, and I don’t know if that’s for work created during that timeframe or a claim made during that period. Luckily I have never had to use mine.
Freelancers Union offers this insurance for the best rate that I’ve found. In fact, I used to pay 10 times more for the same HISCOX policy through a broker.
So if any of these scenarios were to play out, you would also need a trusted individual to take over work for you for some time.
I have a file on my computer called “Emergency.doc.” My husband knows to open that file if something were to happen to me. It includes the contact information for my designer and a local colleague; how they can get into my e-mail account, project management system, which contains all client info and project statuses, etc.; even my website and web hosting account. The file includes screenshots of these things and a link to a screen recording explaining the tabs I always have open in my browser for work purposes.
If you don’t use a project management system, it would be a good idea to make sure you have client info documented somewhere, so that another person can access it if needed.
I just want to be clear: this is not a campaign for insurance. I hate it but it’s a necessary evil in some situations, and that, of course, depends on your situation. I just want you to know the options that are out there. Get advice from a financial planner and do what works for you.
Sorry this was kind of a Debbie Downer episode, but I hope it will help empower you to be prepared and then feel reassured that you’ve taken steps in case a catastrophe were to happen.