Why Record Labels Don’t Provide Healthcare—And How Musicians Can Protect Themselves
For many musicians, signing a record deal feels like the ultimate career milestone—validation of their talent, financial security, and a pathway to success. However, what many artists don’t realize is that record labels do not classify musicians as employees. Instead, they are considered independent contractors, which means no health insurance, no retirement plans, and no guaranteed financial protections.
This lack of benefits can leave artists financially vulnerable, especially when touring, recording, or performing comes with significant health risks. However, musicians can take proactive steps to protect themselves. One of the smartest moves an artist can make before signing a deal is setting up a loan-out company. This strategic business structure allows musicians to better manage their income, lower their tax burden, and even secure their own healthcare coverage.
As Chappell Roan stated in her 2025 Grammy acceptance speech, “Musicians pour their hearts and souls into their craft, but the industry often forgets that we are human beings who need healthcare, stability, and support. It’s up to us to take control of our futures because the labels won’t do it for us.”
In this article, we’ll explore why musicians lack healthcare under record label contracts and how establishing a loan-out company can provide financial stability and protection.
The Hidden Costs of Record Deals: Why Musicians Must Handle Their Own Healthcare
1. Independent Contractor Status
Unlike traditional employees, musicians signed to record labels are classified as independent contractors. This classification means that labels are not required to provide:
Health insurance
Retirement benefits (401k, pension, etc.)
Paid time off or sick leave
Unemployment insurance
This can be a shocking reality for artists who expect a record deal to come with financial stability. Instead, they often find themselves responsible for managing their own healthcare and financial security.
2. The Risks of Not Having Healthcare
The music industry presents high-risk working conditions. From long hours in the studio to exhausting tours and physically demanding performances, musicians are often exposed to significant health risks, including:
Hearing loss and vocal strain
Mental health challenges (stress, anxiety, depression)
Physical injuries from performances or travel
Substance abuse and addiction risks
Legal risks, including contract disputes and liability issues
Without employer-provided healthcare, many artists struggle to afford the coverage they need, leaving them vulnerable to financial hardship in the event of an illness or injury.
The Solution: Why a Loan-Out Company Is a Game Changer
A loan-out company is a legal business entity (typically an LLC or S Corporation) that an artist forms to handle their professional earnings. Instead of the musician signing a deal as an individual, the loan-out company signs the contract with the record label, and the musician is employed by their own company.
1. How a Loan-Out Company Works
A loan-out company acts as an intermediary between the musician and the record label. Here’s how it functions:
The record label pays the loan-out company instead of paying the musician directly.
The loan-out company then pays the musician as an employee.
The artist can deduct business expenses through the company, reducing taxable income.
The loan-out company can purchase health insurance and offer benefits to the artist as an employee.
2. Key Benefits of a Loan-Out Company for Musicians
By forming a loan-out company, musicians gain access to several key financial and legal advantages:
A. Ability to Secure Healthcare
One of the biggest advantages of a loan-out company is the ability to purchase health insurance as a business entity. Many group insurance plans are only available to businesses, and artists can take advantage of these benefits by setting up a legal entity. Even if artists don’t qualify for large group plans, having a business entity can help with tax-deductible individual healthcare plans. Additionally, a loan-out company can provide access to disability insurance, which is crucial for performers who depend on their physical and vocal abilities.
B. Tax Benefits & Business Deductions
With a loan-out company, musicians can classify many expenses as business deductions, including:
Studio time & recording costs
Equipment & instruments
Travel expenses for tours
Marketing & promotional costs
Legal & accounting fees
Health insurance premiums
Tour insurance and liability protection
These deductions can significantly lower taxable income, saving artists thousands of dollars annually.
C. Liability Protection
A loan-out company provides legal protection by separating the musician’s personal assets from their business activities. If a lawsuit arises, the artist’s personal finances are shielded from business-related liabilities. Additionally, in cases of intellectual property disputes, having a loan-out company ensures that assets like song rights and royalties are protected.
D. Retirement Planning & Financial Stability
Through a loan-out company, musicians can:
Set up retirement accounts (SEP-IRA, Solo 401k, etc.)
Pay themselves a steady salary instead of relying on unpredictable income
Establish a business credit profile to secure loans and investments
Plan for estate and wealth management by protecting earnings under a corporate structure
How to Set Up a Loan-Out Company in 5 Steps
For musicians looking to take control of their finances, setting up a loan-out company is a straightforward process. Here’s how to do it:
1. Choose the Right Business Entity
The two most common structures for a loan-out company are:
LLC (Limited Liability Company): Easier to manage and offers legal protection.
S Corporation (S-Corp): Offers tax advantages by allowing musicians to split income between salary and distributions, reducing self-employment taxes.
2. Register Your Business
Choose a business name and check for availability.
Register the company with the Secretary of State in your home state.
Obtain an Employer Identification Number (EIN) from the IRS.
3. Open a Business Bank Account
To keep finances organized, musicians should:
Open a separate business checking account
Use business credit/debit cards for expenses
4. Purchase Business Insurance & Benefits
Enroll in a health insurance plan through the company.
Set up retirement savings plans (SEP-IRA, Solo 401k, etc.).
Secure liability and disability insurance for additional protection.
5. Work with an Accountant or Lawyer
To ensure compliance with tax and legal requirements, musicians should consult with professionals who specialize in entertainment law and business taxation.
Conclusion: Take Control of Your Career
Signing a record deal is an exciting milestone, but musicians must be proactive about their financial and personal well-being. Understanding that record labels will not provide healthcare is the first step.
By setting up a loan-out company, musicians can: (1)Secure health insurance & financial benefits, (2)Reduce taxes through business deductions, (3) Protect their personal assets, (4)Build long-term financial stability (5) Plan for future legal and financial challenges
Before signing a contract, every artist should consider speaking with an entertainment attorney and financial advisor to structure their business in a way that ensures long-term success. Investing in a solid financial foundation today can make all the difference in sustaining a healthy and profitable music career.
If you're an artist looking for legal guidance, our firm specializes in entertainment law, business structuring, and contract negotiations. Contact us today to discuss how we can help you protect your career and financial future.
