Risk Management

Risk management is the science (or art depending on your point of view) of lowering the likelihood of negative financial events happening to you

Highlights

While it mainly revolves around insurance, you can manage your risk through a variety of different ways, such as finding clients who pay in full and on time (or eliminate those who don’t), annuities, and even taking care of your health or assets like your house

Eliminate or reduce your exposure to massive loss events (losing a lot of money at one time in a surprising fashion) by evaluating life, health, business insurance, and anything else that could expose you to large financial losses

Freelancers don’t have the same options as 9-5 workers when it comes to health insurance
Freelancers, being self-employed and/or owning a business, need to employ different types of risk management when it comes to their business or services provided

Risk Management Methods

Insurance

Health Insurance

Individual plans directly through insurance companies, or through your spouse
Group plans through organizations like the Freelancers Union
Government plans through Medicare or the Healthcare.gov marketplace
COBRA can be a decent short term solution if you've just left a 9-5 job and are first diving into freelancing
Premium = amount you pay each pay period for the insurance
Deductible = how much you have to pay before your healthcare starts kicking in
Out of pocket maximum = the maximum amount you pay before insurance kicks in and starts paying for 100% of the balance
Copay = typically for lower cost expenses like medicine or a routine doctors visit. The copay is the amount you pay each time for these services
Coinsurance = once you’ve met your deductible, this is the percentage amount you’ll pay for the rest of the service (such as an expensive surgery). Subtract this percentage by 100 and you’ll get the amount that insurance will cover

Life Insurance

Term Insurance: fixed premiums for each term, death benefit expires at end of term, no cash value
Whole Life Insurance: fixed premiums, fixed death benefit, fixed and guaranteed cash value
Universal Life Insurance: flexible premiums, adjustable/level/increasing death benefit, cash value equal to current interest with guaranteed minimum
Variable Life Insurance: fixed premiums, death benefit value varies with performance of separate account but original face value guaranteed, cash value varies with performance and no minimum
Variable Universal Life Insurance: flexible premiums, death benefit adjustable/level/increasing, cash value varies with investment performance, no guaranteed minimum

Business Insurance
General Liability Insurance: can protect against property damage or injuries, and potentially libel and copyright infringement
Professional Liability Insurance: this type of insurance can offer protection against mistakes the freelance might make in their work that negatively affected a client

Other

Annuities are a complicated and debated topic. They often charge high fees and don’t always provide the return some may look for, so proceed with caution. Fixed annuities provide a lump sum payment at the end of their term and are generally considered less risky, although provide a lower return.
Finding clients who pay on time or eliminating those clients who don’t
Health: taking care of your health is a form of risk management. While it may cost a little bit each month in the form of a gym membership or more expensive (and healthier) groceries, you’re less likely to get hit with surprise hospital bills or the need to take off work and forgo an income for mental health