The Changing Workplace Will Dramatically Change Your Insurance Needs
The Self-Employed will become responsible for their own benefits
As an insurance broker in my home province of Alberta, Canada, I have seen the dramatic shift in the way professionals here are employed. A large and growing number of professionals, like engineers, consultants, and IT professionals are more likely to be self-employed into their mid to later career than being an employee.
This dramatic shift in the Canadian workplace and the growing trend of skilled workers becoming self-employed, will have a profound impact on the entire Canadian economy, our society, and the financial services industry.
Why the changing trend in employment status
For both employers and self-employed workers, the shift from employee to self-employed contractor makes a lot of sense. This win-win solution brings lots of benefits to both groups, and in many circumstances creates a very satisfactory working environment.
Benefits for the employer:
- Can select expertise for certain projects from a pool of talented professionals, and only hire them for the specific job they need completed.
- Avoid paying for expensive employee benefits and pension plans that can be a large financial drain on the company.
- Pay for results and measurable outcomes instead of managing employees, trying to encourage them to perform.
- Can easily sever a relationship with a contract worker who is not performing or causing problems for the employer.
Benefits for the contract worker
- Much higher level of income as a contract worker than as an employee to compensate them for lack of benefits and lack of job security.
- Ability to reduce taxation by forming an incorporated business or professional corporation.
- Can manage and control their own financial plans, including retirement investment plans and personal insurance, which can be much more valuable plans than limited group benefits.
- A much greater ability to have work-life balance as they can take more vacation time if they want and can telecommute to work more frequently.
This trend to self-employed contractors over employees is only going to accelerate. New management companies are forming, affectionately known as pimping firms, who have a pool of talented professional contractors, and they keep these workers as full of jobs as they choose to be. Workers with specialized skills, like engineers, project managers, computer analysts, etc. are all shifting to being self employed contract workers.
What this means for your insurance plans
As the workplace of tomorrow changes, and employers decide to use contractors more for specialized skills and projects, the most valuable skilled workers will leave their full-time jobs and become contractors. They will also leave behind their group benefits plan and their retirement savings program sponsored by the employer.
Every contract worker will be responsible to design their own insurance plan and retirement program. Luckily for these works there are a number of good options to choose from.
There are some professional associations that certain groups of workers can join and can enroll in those association plans for the insurance benefits. These groups would include doctors, professional engineers, lawyers, etc. But there are many other common self-employed workers who have no such associations providing benefit plans they can be a part of.
Even if you could be a part of an association plan, it might be a better idea to look at personally owned insurance plans vs. any kind of group plan. Self- employment gives everyone the opportunity to design high value, personally owned and personally controlled financial plans instead of being a member of a group, with limitations on the amount and quality of the insurance you get.
Covering all your risk holes
To properly design your personal insurance plan, you will need to look at a number of options to make sure you are properly covered. Firstly there are the being financial risks, like premature death and disability, which could ruin you and your family. Secondly are the minor financial burdens of dental care and prescription drug costs that need to be paid for. Let’s look at some insurance plans for the self-employed:
- Life insurance to pay off debt and replace income. Can be handled with low cost term life insurance or you can look at adding permanent life insurance with a cash value, investments, and guaranteed cash flow for your estate and heirs.
- Disability insurance to protect your income if you are no longer able to work. A personally owned disability insurance plan can be designed as a Cadillac model, with coverage for the rest of your working career if you were permanently disabled from the work you are doing now.
- Health & Dental insurance to cover ongoing medical costs for yourself and your family. Would also provide coverage for very high drug therapies if you were struck down with a critical illness requiring advanced and expensive medications.
- Setting up a Private Health Services Plan (PHSP) if you are incorporated to reduce medical expenses by having your corporation pay for your personal medical care needs, as a tax free benefit to you.
Building long-term value into your insurance plans
There are many excellent life and health insurance products on the market today that you can benefit from. Instead of just opting for low cost term life insurance, you can acquire high value permanent life insurance, namely whole life or universal lie insurance, to help build your wealth accumulation plan now and increase the size of your estate for the next generation. This will bring a lot more value to you insurance premiums vs. just paying the rental cost for term insurance.
Also, personally owned disability insurance can be much more valuable to you too. Many Canadian insurance companies are offering disability policies that can convert into Long-Term Care Insurance when you retire and no longer need income protection. This creates lifelong planning inside your policy, as it transitions from income protection into retirement health and lifestyle protection.
Have money left over for investments
As a self-employed contract worker, your income will be much greater than what you would earn as an employee (otherwise what’s the point of going on contract). Even after paying out $500 – $1000 per month for all your own life and health insurance needs, you will probably be taking home more money than you were as an employee (especially after the additional tax deductions you can benefit from).
This leaves a great deal of extra money for investments into your RRSPs, TFSAs and other wealth accumulation strategies. With proper advice, self-employed contract workers should have a much better financial picture than their employee counterparts. This comes with some strings attached, however. You really need to be good at your job and deliver high quality work for the contracts you get, otherwise the work could quickly dry up.
Get qualified advice to build your own self-employed insurance plan
Our brokers at Life Guard Insurance are ready to help you design a life and health insurance program that will protect your income, your family, and your medical expenses. We can show you how you can create more value and wealth inside your insurance policies than anything you could have through a group benefits plan. Contact us today for a no obligation review of your insurance needs.
The article was written by +Mitch Reynolds. If you found this article interesting or it made you think, please feel free to share your comments below. Liking us on Facebook, giving us a +1 on Google or Tweeting this article about the changing workplace towards self-employed workers and their insurance needs would be very much appreciated.