How to keep full-time benefits when you go freelance


Adam Cecil

Adam Cecil

Former Staff Writer

Adam Cecil is a former staff writer for Policygenius, a digital insurance brokerage trying to make sense of insurance for consumers. He is a podcast producer, writer, and video maker based in Brooklyn, NY.

Published October 30, 2014|7 min read

Policygenius content follows strict guidelines for editorial accuracy and integrity. Learn about our

editorial standards

and how we make money.

News article image

Finally! You’re striking out on your own and becoming a freelancer. You can’t wait to set your own hours, meet new people, and work on projects that you could only dream of before. But before you hit the ground running, take a step back and make sure you have your benefits in order. If you’re not careful, you could lose almost all of your insurance coverage, which you may have trouble replacing. So, before you quit: go through our checklist and make sure you know what benefits you can take with you when you leave your employer.

Before You Quit Benefits Checklist:

  1. Health Insurance

  2. Life Insurance

  3. Long-Term Disability Insurance

  4. Other Voluntary Benefits

  5. Retirement Accounts

  6. Sick Days / Vacation days

  7. Flexible Savings Accounts

Health Insurance

Luckily, keeping your old job’s health insurance is relatively easy. The US Congress passed COBRA, short for Consolidated Omnibus Budget Reconciliation Act, back in 1986, allowing people to keep group health coverage from an employer that otherwise would’ve been terminated.

The easiest way to learn more about COBRA is to talk to your soon-to-be-former employer. If your employer is required to offer the coverage, they’re also required to notify and inform you of it. How do you know if your employer offers COBRA? Any business that has more than twenty employees is usually required to offer it. It also applies to both private-sector companies and state and local governments.

If you’re leaving your job to become a freelancer, you should have no problem continuing your coverage under COBRA. It covers you whether you leave voluntarily or involuntarily, as long as you’re not being fired for gross misconduct. It also allows dependents, such as a spouse or children, to stay covered.

A bit of warning: you’ll probably end up paying more on your premium than you’re used to. Any part of your premium that your employer was subsidizing will now be on your bill. Ideally, this will still be cheaper than what you would pay if you bought individual health coverage.

If you want to compare prices for individual plans, you can check out your state’s health insurance marketplace. Losing your job’s coverage is one of the special events that will allow you to buy a plan outside of the open enrollment period. Don’t base your decision completely on price, however: check to see if your current doctor will accept the individual plans you’re considering (if that matters to you) and make sure that the drugs you need are covered. It might be worth sticking with your old plan even if it’s more expensive.

Wondering about dental and vision insurance? They’re often lumped in with a employer’s health insurance plan, and would come with you if you continued coverage under COBRA. Otherwise, they can be bought on your state’s marketplace. (Need help shopping for an individual dental plan? Check out our tips for picking the best dental plan for you.)

Need help navigating the marketplace? Check out some of our previous posts about the health insurance marketplace:

Life Insurance

First things first: make sure you have a life insurance plan through your employer. Then, call HR and ask if your life insurance is portable. Not portable like an iPod—in this case, portable means that you can take your group life insurance policy with you no matter where you go. If your policy isn’t portable, it may be convertible, which means you’ll be able to convert it into an individual policy that you can keep after you leave your employer.

Just to break that down again: porting means you’re keeping your group policy (and low group rates) when you leave, while converting means you’re turning it into an individual policy (with higher rates).

If you can’t keep your old life insurance policy, or you want to compare the price of different policy, it’s easy to buy a new one. Use PolicyGenius’ simple life insurance tool to grab a free quote. We help you calculate exactly how much life insurance you need so you don’t overpay on your premiums. Sometimes, your employer life insurance might not be enough. Our calculator can also help identify the remaining coverage gap, if any. That way, you can avoid paying more than you should (for more insurance than you need).

Need some guidance when it comes to picking policies? Check out our most recent article on life insurance shopping tricks:

Long-Term Disability

If you already have long-term disability insurance through your employer, check with HR about whether it’s portable or convertible. That way, it’ll be easy to take with you when you leave.

If you don’t already have long-term disability insurance, read the next bit carefully. Seriously. It might just save you from financial ruin.

If you don’t already have long-term disability insurance, but want to have it once you’ve become a freelancer, you need to buy a policy while you still work at your full-time job.

This might seem counterintuitive, but it’s tied to two very important facts:

  1. Once you have a non-cancelable LTD policy, you can switch occupations as often as you want and still have coverage.

  2. LTD insurance companies won’t cover freelancers unless they can prove that they have over two years of consistent income.

So while you’re still employed full-time, apply for LTD insurance through PolicyGenius and get covered. Make sure it’s non-cancelable and guaranteed renewable (meaning, the insurance company can’t cancel or change the terms of your policy as long as you’re still paying premiums) and, once you leave your job, change your occupation class over to freelancer with your insurance company.

While you’re considering LTD policies, check out our previous articles with LTD policy shopping tips:

While a long-term injury or illness is the bigger risk, you may want to consider a short-term plan through Policygenius partner LifePreserve to cover the period before your long-term benefits kick in.

Voluntary Benefits

Your full-time job might offer you other, opt-in benefits (pet insurance, for example). Like life and LTD insurance, you can check with your HR manager to see if these policies are portable or convertible. If you can’t keep them and they’re must have benefits, you’re going to have to do some shopping for individual policies.

Retirement Accounts

When moving from job to job, you have the ability to roll over your old employer’s 401(k) into your new employer’s 401(k). So what do you do when you’re striking out on your own?

You’ll want to roll over your old 401(k) into an IRA, or Individual Retirement Account. You can do this with the help of a financial advisor or bank, or by setting up an account with an automated investment solution like Betterment or Wealthfront. You might also be interested in setting up a Roth IRA, where you pay taxes on contributions and enjoy tax-free withdrawals. Check with your financial advisor to see which plan is right for you.

Sick Days / Vacation Days

Many employers will cut you a check for any sick or vacation days you have left at the end of your tenure. Check with your employer to see what their policy is.Many employers who will pay you for unused sick and vacation days also impose limits. For example, they may only pay you for a total of 14 days. If you have 20 vacation days left, you might want to consider a six day vacation. Otherwise, those days disappear into thin air.

Flexible Savings Account

Some companies have flexible savings accounts (FSAs) as part of their health insurance benefits package. FSAs allow you to contribute up to $2,500 of your paycheck every year, tax-free, to use on medical expenses. If you don’t elect to keep your employer’s plan through COBRA, the money in this FSA will be lost to you (thanks, in large part, to its "use it or lose it" clause that says the money must be spent within the year).

While you won’t be refunded directly, there is an upside to future freelancers with FSAs. Because of a rule that requires the full amount of an FSA to be available to employees at the beginning of the new year, individuals can spend more than they have contributed. (For example, let’s say you’ve only contributed $500 so far, but you need to pay $700 for medical expenses. You’ll be able to take the full $700 out of your FSA despite the fact that you haven’t contributed it yet.) This also means that employers cannot require employees who are voluntarily or involuntarily leaving their jobs to pay back this difference (in the example above, $200).

So before you leave your job, you should try to spend as much of the $2,500 as possible. Schedule your physicals and your dental and vision check-ups before you leave and use up that FSA!

Completing the checklist

Making sure that you have complete and comprehensive insurance coverage should be one of your top priorities before you go freelance. PolicyGenius has a number of great tools and guides to help you with your insurance needs, including our unique Insurance Checkup, which will examine your existing coverage to identify any insurance gaps.

Do you have other tips for people going freelance? We want to hear them. Give us a shout in the comments below.

Photo: thom