Financial Planning For Consultants

publication date: Mar 12, 2019
author/source: Promod Sharma, FSA, FCIA, FEA

When you start your own consulting business, you become your own employee. Are you treating yourself the way you would expect if you worked for another company?

Being positive is essential for a consultant, especially in the beginning when your practice may not give you the financial results you expected. It’s tempting to cut back on what seem like frills.

Being realistic is also important. Bad things could happen. That’s where insurance can really help.

The best time to prepare is while you are still an employee and healthy. Group benefit plans are more forgiving of pre-existing conditions because the employer subsidizes the cost of the benefits.

The Conundrum

When you pay the premiums yourself, insurance looks expensive. When you have a pricy claim, you wish you had more or better coverage.

You will likely pay more in premiums than you receive in benefits. That’s good because that means you were healthy. What you get for your premium is peace of mind.

Plan For Unexpected Medical Costs

Right after leaving your employer’s group plan, you may qualify for drug, dental and travel insurance regardless of your health. Getting that coverage immediately is wise because:

● You have a limited timeframe and may forget

● Your benefits may not start until the first of the next calendar month

You can then look for better plans that require medical underwriting. Cancelling insurance you don’t need is much easier than qualifying for coverage.

If you have a spouse with good employee benefits, you’re fortunate. You may not need your own health insurance. Review their plan carefully before deciding. Since medications are becoming more expensive, you might still want to get standalone unlimited coverage for prescription drugs.

Protect Your Ability To Earn

If you’re unable to work due to an injury or illness, your expenses continue — and may even increase. What happens to your income? Disability insurance helps by providing tax-free income that can continue to age 65. You may be able to add options to index your benefits to inflation and increases in your income.

Consultants often find the premiums look high. That’s because the probability of a disability is high. That’s also why qualifying is difficult. You face additional restrictions if you work from home since adjudicating claims is more difficult.

You can reduce your premiums by:

● Extending the elimination period before benefits start

● Electing less than the maximum benefit amount

● Removing the option to increase your benefits as your income increases

● Removing the option to index your benefits to keep pace with inflation

Protect Your Loved Ones (including yourself)

If you have a dreaded disease (e.g., cancer, heart attack or stroke), your expenses can increase while your income decreases because you can’t work. Critical illness insurance provides a tax-free lump sum to use as you wish. To save money now, you can:

● Select coverage for a short period like 10 or 20 years

● Omit options that refund your premiums if you don’t have any claims

If anyone else depends on your income, examine your life insurance. Do you have enough? If not, adding coverage for 10 or 20 years is inexpensive. If you have health issues and act quickly, you may be able to continue the coverage from your previous employer. This is called a “group conversion”.

Protect Against Liability

If you qualify for liability insurance, you’re able to protect yourself better. Clear engagement agreements are a good form of insurance. If you draft a template, you can hire a suitably-trained lawyer to review it for you.

Getting incorporated is another way to protect your assets — especially if you can’t get liability insurance.

Save For Retirement

While your retirement may be decades away, planning is still important because the magic of compound interest takes time. You can save using tax-preferred vehicles: TFSAs and RRSPs. Since the life of a consultant is less predictable, a TFSA is a solid way to start because you can make withdrawals without penalty.


If you want to invest time in learning, you can buy some basic insurance online directly from the insurers. That may seem tempting but what are you giving up for the convenience? Since you’re an independent consultant, consider working with independent consultants. As bonuses you get: ● Answers to questions you may not have thought to ask

● An expert in dealing with insurers for administrative needs

● An advocate in case you have a claim

● A well-connected referral source

The Risk

As a consultant, you have many advantages over being an employee. You also have responsibilities to yourself. Planning helps you protect your finances.

Promod Sharma (FSA, FCIA, FEA) is an insurance actuary who worked as an employee before becoming a consultant at Taxevity Insurance ( in 2009.

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