People who earn their living as independent contractors generally love the work they do. They’re their own boss and are often able to work highly flexible hours. Depending on their niche, they can be highly successful and achieve great wealth. Indeed, for some, such as professional real estate agents, the rewards of their labor can be great. With a little thought and planning, a full look at the financial needs of independent contractors can boost their ability to achieve and maintain success.
Real Estate Agents: Are You An Independent Contractor?
If you are working as your own boss or otherwise self-employed and do not receive a salary or hourly wage from company or other business entity, you are probably an independent contractor. According to the IRS: “The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done”.
As a real estate agent, it is highly probable that you meet the IRS’ criteria of an independent contractor. Along with the benefits of being independent, such as the many tax write-offs available to you, there is a downside as well. The majority of independent agents do not have a base salary or any benefits provided by the firm at which they work. They must provide this by their ongoing successful efforts.
You’re the bulk of this income Important Asset
Unless you are an independently wealthy real estate agent, your most important asset is your human capital. You depend on your hard work and excellent skills to bring in your family’s income. The bulk of this is probably in the way of commissions. Although a few real estate brokerages do offer salary and limited benefits to their agents, most do not. Your commission-based income produced by your human capital is your lifeblood. It covers your family’s day-to-day needs as well as any insurance, retirement savings and other benefits you need. If you were unable to work for some reason, your financial health could radically change.
How To Protect Your Human Capital
Disability insurance provides the best means to protect the earning power of your human capital. Many people are familiar with life insurance, which pays a benefit to your survivors should you die. Nonetheless, the fact is that more working people become disabled than die. The US Social Security Administration estimates that a 20-year-old has an almost 27% chance of becoming disabled for at least 12 months before they retire. According to the Council for Disability Awareness, if a person should become disabled, the average long-term absence from work is 34.6 months, or almost three years.
Disability insurance can be crucial for real estate agents, especially those in the early or middle parts of their career when they may not have built up adequate rainy-day savings. If you become unable to work because of a disability, the payout benefits will keep you afloat without breaking your bank until you are well enough to work again. Generally, there are two kinds: Short-term disability insurance, covering disabilities lasting for up to six months, and long-term insurance for those unfortunate situations when a worker is unable to work for a longer period of time.
Many folks procrastinate or shy away from purchasing disability insurance. According to a recent Forbes article by Peter Lazaroff, this is because most of us humans suffer from what is termed “optimism bias”, which for our purposes means that we tend to believe that bad things generally happen to other people. Optimism bias gives us the justification that we don’t need disability insurance, despite the statistical evidence to the contrary. Don’t be a procrastinator; instead get your financial house in order by having some form of disability insurance.
Mr. Lazoroff offers another thought about disability insurance. Some people fret about the cost. He advises that, if you must choose between short- and long-term insurance, choose the long-term. His view is that you can build up your savings to cover a short-duration disability more easily that having to survive a financially catastrophic long-term disability.
Rosenbaum Financial and the 1099 Advantage Plan
By now you may realize that you’d like to obtain disability insurance. If you have none or are under covered, 1099 Advantage Plan is the premier place for disability and other insurances for real estate agents and other independent contractors.
The 1099 Advantage Plan provides long- and short-term disability insurance as well as life insurance, wealth preservation, accident coverage, and other benefits. This plan is highly customizable, adaptable to a wide spectrum of specific needs and situations and helps you protect your human capital.
Managing Principal, Rosenbaum Financial