Anyone who dares to try out being self-employed suddenly has to pay attention to certain things that did not play a major role from a tax and financial standpoint before. In particular, freelancers have to take care of some insurances themselves. The most important ones are presented in this article.
Freelancers and self-employed persons can choose whether they want to register with the state-mandated or a private health insurance. The monthly contributions are based on the contribution rate of the respective insurance on the one hand and your income on the other hand. A big advantage of the state-mandated health insurance is that non-working family members are insured as well. Private health insurance companies will require separate contributions for spouses and children. They are particularly suitable if a self-employed person earns a rather high income and is single or married, but doesn’t have children.
However, the contribution amount is not the only thing that factors into a decision for one or the other. Another point that should be considered is the coverage. Is basic coverage sufficient or do you want the best possible coverage to be guaranteed? In the latter case, a private health insurance might be the better choice. It should be noted, however, that the contributions for private health insurances can increase significantly in old age.
It is possible to found a GmbH or a UG as an individual, both of which have limited liability. However, most self-employed persons are either freelancers or small businesses and therefore fully liable with their entire assets. Therefore, a liability insurance is as necessary as a health insurance. As a freelancer, it is important to distinguish between private, business and professional liability.
Private liability insurance
A private liability insurance costs only a few euros a month and should be purchased by every adult. However, it only applies to private liability cases, not to professional or business matters.
Business liability insurance
Another important insurance for self-employed persons is a business liability insurance. It covers damages to persons and properties that occurred on the company grounds, in the office or through the activities of a freelancer. In some industries, a business liability insurance is a must in order to be self-employed. Most banks also require proof of it when a loan is being requested.
When taking out this insurance, you should ensure that the contract matches your professional circumstances. Companies with employees pay significantly higher contributions than freelancers, as they usually need a higher coverage. For freelancers, covering the most fundamental risks is usually sufficient.
Professional liability insurance
A business liability insurance does not cover all damages that may arise from working as a freelancer. If, for example, a mistake is made during a contractually agreed project, which in turn causes damage and costs for the client, the business liability insurance does not apply. It also does not apply for a hacked computer or the loss of data.
This is where a professional liability insurance comes in. It is more expensive than a business liability insurance, but includes job-specific risks and offers the highest possible protection. For some professions, e.g. for physicians, pharmacists, lawyers, financial investment brokers or engineers, this insurance is mandatory. However, it is also recommended for freelancers, as it can prevent a bankruptcy if the freelancer is at fault.
Occupational disability insurance
Self-employed workers and freelancers enjoy no or no adequate state protection if they suddenly can no longer pursue their profession due to an accident or illness. Therefore, they should definitely take out an occupational disability insurance. It will step in as soon as your work has to be interrupted for more than six months. The paid monthly amount depends on the agreements in the insurance policy. Of course, the higher the insurance coverage, the higher the insurance premiums you have to pay. For freelancers, a serious illness usually means a total loss of income, so taking out an occupational disability insurance definitely makes sense.
For most freelancers, the retirement insurance is not compulsory. However, you can still join the statutory or a private retirement insurance in order to cover your expenses in old age. In Germany, professional groups such as publicists or artists are insured for long-term care through the Künstlersozialkasse (KSK), which, like an employer, pays half of the contributions to their health, long-term care and pension insurance.
Other professions, such as IT freelancers, should take the initiative themselves and make provisions to cover their retirement. This does not necessarily have to be in the form of a retirement insurance. It can also be done in other ways.
Legal expense insurance
A legal expense insurance is not necessarily a must. However, it can make sense if you have a large clientele, as this increases the risk of a legal dispute. A legal expense insurance protects you against high legal fees. However, the policies for self-employed workers and businesses are quite expensive.