Table of Contents Introduction Why Do You Need Insurance? Insurance Basics What Type of Insurance Do You Need? Buying Insurance Health Insurance Long Term Disability Errors & Omissions Other Business Insurance Resources

Buying Insurance

You can buy insurance directly from an insurance company, or through a broker. A broker’s role is to help you find the best options among many companies’ offerings. For helping you, the broker receives a commission. For all types of insurance, make sure that you’re getting the best plan for you, and not the plan that gives the broker the best commission.

If you are a sole practitioner, the broker who sells you your homeowner and automobile policies may be the best place to start for insurance other than health insurance. Some “business brokers” don’t want to deal with very small businesses. For some types of insurance you’ll get the best rates by joining another association. Suggestions for specific types of policies are included in the topics that follow.

Health Insurance

You may have worked for a large organization and participated in one of their plans. As a consultant you enter a new world. Being accepted for insurance and the premium structure are quite different. Once you have the insurance, your recourse in case of problems is somewhat different as well.

This section outlines the steps you’ll go through to purchase individual insurance. STC has a link to a brokerage company that offers individual and group health insurance plans from well-known companies. These are the steps that you’ll go through whether you work through the STC insurance or another source, whether on line or if you have a broker come to your home. It may take several weeks to complete the process, so begin before any existing policies expire.

  1. Enter basic demographic information.
  2. Insurance for individuals and small groups is regulated by individual states so the first information that is required to obtain a quote for health insurance is your Zip Code, sex, and age.
  3. Select the type of plan to consider.
  4. Once you’ve entered the basic demographic information you’ll see numerous plans which usually include PPO, POS, HMO, and HSA. Research the Web and news media for the pros and cons of each plan type. You can usually compare the plans online as well.
  5. When choosing a type of plan you’ll need to decide which factors are important: the type of deductible with which you’re comfortable, the providers available, out–of–pocket expenses, and whether there is prescription drug coverage.
  6. Georgetown University Health Policy Institute lets you view requirements and limits for plans by state.
  7. Many Web sites allow you to select several plans and compare them. Information usually includes premiums, deductibles, co–pays, and whether prescription drugs are included.
  8. You need to know what the actual costs are likely to be. Use your expenditures over the past three years to give a true comparison of plans. See how much the actual expenses would have been for the two or three plans you’re considering.
  9. Another critical criterion of a plan is how well the insurer pays claims. Although the providers in the network are important, whether the insurer will pay claims and how few the hassles are critically important. You’ll need to research this carefully, usually through your state’s department of insurance. The STC insurers are the better known and funded plans. Check out the National Committee for Quality Assurance (NCQA), which has worked with U.S. News & World Report (U.S. News) to produce a report on the quality of over 680 health plans.
  10. Apply for insurance.
  11. Now that you’ve narrowed the potential plan down, you need to actually apply for the insurance. The insurance term is underwriting. This is done to see if the insurer will accept your application for insurance. If you previously had insurance with a large, multi–state corporation, underwriting may not have been required.
  12. Underwriting means that you allow the insurer to asking you qualifying questions and then to investigate your medical history. You may also be required to take tests. You will be asked many questions about your health, including whether you’ve had specific conditions and current medications. Be accurate because they will check your medical history through a Medical Information Bureau. The questions can look back ten years, so it may be worth checking your own records that far back. Going forward, keep a one–page–per–year history of treatments.

Go to TopReview the policy that’s offered

Once the underwriting is complete, the insurer will tell you whether you’re accepted, what the policy will actually include, and the premiums. Things that may occur:

The actual premiums may be higher than the original quote due to these conditions. If you are rejected, you can appeal to have the policy reviewed, and hopefully changed. You can apply to a different insurer as well.

Most states have limited insurance available through high risk pools for people who’ve been rejected by standard carriers. The states’ laws determine the number of people who can obtain the insurance, and the states set the amount of the premiums, which are generally 125 – 150% of the premiums charged to individuals.

Go to TopAccepting a policy

Once you’ve decided to accept a policy, be sure you understand everything in it.

Be sure there’s no gap in coverage. Don’t cancel your current insurance until you have in writing when the new plan will start. Cancel your current insurance so that it terminates immediately before the new plan begins. For example, if the old policy cancels at 11:59 P.M. of the last day of the month and the new policy must start as of 12:00 P.M. of the first day of the new month.

Go to TopLong Term Disability

Long term disability, sometimes called simply disability, is often offered by employers to all employees as part of the benefits package. It provides income to you should you be disabled and unable to work for a time specified in the policy, from 60 days to 26 weeks.

Disability insurance can be obtained directly through well-known insurers, or through brokers.

Go to TopErrors and Omissions

Errors and Omissions (E&O), sometimes known as professional liability, may be important if you believe that a client, or client’s client, may sue you because your service or product didn’t work the way they expected it to work.

It’s possible that you won’t need it if your business is incorporated. It’s also possible that a client may require you to have it, whether your business is incorporated or not.

An argument against needing professional liability is that you always have clients sign off that materials meet their requirements, and that E&O is redundant. Check this out with your attorney.

An individual E&O policy can be extremely expensive if you purchase it through an insurance broker. Belonging to another professional association that offers E&O insurance at group rates may be less expensive than buying it directly through an insurance broker.

Go to TopOther Business Insurance

The following types of insurance may or may not be needed, depending on your business structure, state in which you work. Independent consultants may not need all the insurance required by small businesses that have employees.

Go to TopGeneral Liability

This type of insurance pays for a variety of situations in which businesses operate. Situations may include bodily injury, libel, and others. If clients come to your office, it may be important. If not, a simple policy will do.

The policy generally states a maximum amount that would be paid during a given period. Check with your broker to see what’s needed for an independent consultant in your state.

Go to TopUmbrella insurance

This type of insurance picks up where general liability insurance stops. It is relatively inexpensive.

From the Insurance Information Institute:

Coverage for losses above the limit of an underlying policy or policies such as homeowners and auto insurance. While it applies to losses over the dollar amount in the underlying policies, terms of coverage are sometimes broader than those of underlying policies.

Go to TopAutomobile insurance

Check with your insurance broker to determine if you need auto insurance beyond your individual policy. This will depend on how much you use your car for business which could include driving others in your car, or carrying equipment other than your own.

Go to TopWorkers’ Compensation

Workers’ Comp insurance is purchased by businesses for employees who may be injured on the job. According to the Small Business Administration (SBA):

“In most cases, business owners, independent contractors, domestic employees in private homes, farm workers, and unpaid volunteers are exempt.”

Check with your state and your attorney before you consider purchasing workers’ compensation insurance.