As a freelancer working in the Netherlands, you don't want to think about one thing: disability. Yet it is smart to think about what happens if you become ill or have an accident and you can’t work for a longer period. You can prepare yourself for unforeseen circumstances by taking disability insurance (dutch: arbeidsongeschiktheidsverzekering or AOV). Flow Your Money and ZZP Nederland started the cooperation to offer freelancers a handy tool to save for disability insurance.
As a freelancer, you are not covered by employer insurance, which means you don't get paid in case of illness or an accident. You are therefore responsible for your own financial safety in case of unforeseen circumstances. It may be that you have already built a financial buffer to bridge this difficult period, but if you haven’t, it is worthwhile to look at the disability insurance (dutch: arbeidsongeschiktheidsverzekering or AOV).
What is disability insurance (dutch: arbeidsongeschiktheidsverzekering or AOV)?
Disability insurance (AOV) ensures that you have a monthly income when you can’t work. There are costs involved in having disability insurance, which depends on the choices you make. The disability insurance premium is easy to calculate by filling in your profession, yearly income, age, and the desired starting date. It is also possible to discuss everything first with an advisor. The insured amount is the amount that you will be paid if you become disabled (temporarily or permanently), you have to choose this amount when purchasing disability insurance (AOV).
Which disability insurance can you choose and how to choose the best option?
Most freelancers choose the insurance with the highest amount, often set at 80% of the average income, but that makes the monthly premium (insurance fee) high. By accepting a lower payment in case of occupational disability, you can reduce the monthly premium of the disability insurance. Also, by bridging the period of the deductible with your own buffer you can reduce the premium.
Insurers usually offer various disability insurances, such as indemnity insurance (where you receive a benefit when the income has decreased due to disability). Some insurers offer you disability insurance for a few years, where you will receive benefits for 3, 4, or 5 years, which also makes the cost of the premium less. Usually, you can also opt for collective disability insurance, together with fellow freelancers, which is more advantageous.
Flow your disability insurance
What is the smartest way to save for disability insurance? By setting aside money on a monthly basis. With the Flow app, you put the money for disability insurance in one of the jars through several bank accounts that are linked to your account in the app, and that automatically distribute your income according to rules that you as a user set up yourself. Each incoming transaction is then automatically distributed so that your money is used optimally and you always have insight into current budgets, including the money you spend on a premium for disability insurance.
With Flow app you can easily build a buffer for your disability insurance.
The monthly AOV premium can be reduced by setting a longer waiting period before the insurance starts, for example between three and six months after you become disabled. However, you must then have a buffer to bridge the period until the insurance kicks in. The Flow app makes it easy to build your disability insurance buffer automatically.
How does automatically saving for disability insurance work?
In the example below, you can see how the money method works in the Flow app. First, you put money aside in different jars: the income tax, VAT, business expenses, and the monthly salary from your company. The money that remains after this goes automatically to the jar for the AOV buffer. When the target amount for the bridging period is reached, the money automatically goes to the general buffer or to the jar for profits.
Disability insurance (AOV) buffer in the Flow Your Money app
How do you calculate what you need for the disability insurance (AOV) buffer?
Calculating your buffer is not easy. A rule of thumb you can use is: add your monthly private salary to the business expenses needed per month to keep your business afloat. Multiply this amount by the number of months until the insurance starts and you know what amount you should put in the disability insurance (AOV) buffer jar each month. In the blog "What kind of AOV buffer do you need as a freelancer”.
Suppose you need 3500 euros every month, then for a period of three months you should have over 10,000 euros in the disability insurance (AOV) buffer until the premium kicks in. This is not an amount that most freelancers have in their bank account, but through the flow app you build up the amount automatically.
Curious? Get started right away with the disability insurance (AOV) buffer flow in the flow app.
Open the Flow app or download it here to get started.
In the coming weeks, you can read guest blogs by our partner ZZP Nederland, the expert in disability insurance (AOV).