Working Without a Net Can Be Bad for Your Health

The You don't have a boss looking over your shoulder, and you're not tied down to a 9-to-5 job. You can pick your clients, choose your own hours and decide the best way to get the job done. You're self-employed. Ah, what freedom.

But wait a minute. You also don't have automatic company benefits, such as health insurance. Nonetheless, there's no cause to regret your independence or to work without a net; you just need a plan that outlines who will pay the bills if or when you need medical treatment.

Basically, you have two choices — individual or group health insurance.

Individual health insurance policies

An individual health insurance policy is a contract between you and an insurance company. With an individual policy, you can create a plan to match your specific needs and the needs of your family. The cost of the policy is based on coverages you choose and the amount of deductible you agree to pay

Types of coverages might include doctor visits, prescriptions, hospital stays and other related items. If you're single with no dependents and have had few medical needs in the past, you may choose a limited number of coverages. If you have a family with various medical needs, however, you may choose an expanded version.

Because the expanded coverage policy covers more medical situations, it would also come with a higher premium than a policy with limited coverages. The premium you pay for the policy is further impacted by the deductible amount. Typically a larger deductible means a lower premium. Common deductibles are $250 and $500 annually.

The deductible you choose should be determined by your cash flow. If you have substantial cash reserves and can afford to pay more out-of-pocket expenses, choose a higher deductible to save on premium cost. Individuals with little or no cash reserves are probably better served by choosing a lower deductible option.

Most individual health insurance plans are subject to medical underwriting. That means the cost of your policy and whether you are accepted into the plan will depend upon your health and pre-existing medical conditions. This isn't necessarily the case with a group health insurance plan.

Group health insurance policies

Your second option for health coverage is a group insurance policy. Group plans are typically less expensive than individual health insurance policies, but they may offer more limited coverages than their individual counterparts.

A group policy is a contract between you and the group that worked with an insurance company to create the policy. Based on your professional affiliations, you may belong to an organization that offers group health insurance coverage to its members.

You may or may not have this option available based on the type of business you operate. Check with professional organizations and other affiliations to determine if this is available to you. Your local chamber of commerce also may offer a group health insurance plan to member organizations.

Making the decision

Before choosing among the health insurance options you discover, do your homework. Ask around. You can find out a lot by talking to other self-employed professionals about their experiences with the choices available to you.

Also talk to your health care provider about the plans in your area. Most physicians and their staff members will have a good idea about user-friendly plans in your area. Other business owners in your area are also a valuable resource. Find out how they are meeting their health care needs and why they chose the insurance plans they are using.

Risky business

If you don't choose individual or group health insurance, then your only other likely option is self-insurance.

Self-insurance can be risky for the self-employed. By not transferring your health care risk to an insurance company or group, you are taking the responsibility for all of your health care bills and exposing yourself to payment, regardless of how large the bills may become.

Insurance allows you to transfer or share that risk with someone else and thus to adequately protect yourself, your family and your business.

- Hope Bingham, financial services consultant for Country Companies insurance group.