Long-term disability insurance advice for people who are self-employed

Self-employed workers usually don't have the luxury to miss work. If you get disabled and can't earn an income, disability insurance can help pay the bills.

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Rebecca ShoenthalEditor & Licensed Life Insurance ExpertRebecca Shoenthal is a licensed life, disability, and health insurance expert and a former editor at Policygenius. Her insights about life insurance and finance have appeared in The Wall Street Journal, Fox Business, The Balance, HerMoney, SBLI, and John Hancock.

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Self-employed workers don’t have the same luxuries as salaried employees when it comes to sick days and disability leave. Usually, if you’re not working, you’re not getting paid.

But long-term disability insurance for self-employed workers provides income protection, bringing in money when you can’t work so that you’re able to continue to pay bills and keep your business out of danger. That’s just the beginning. Read on to learn why every self-employed or freelance worker should be investing in themselves with long-term disability insurance.

Applying for long-term disability insurance isn’t complicated

How much coverage you need – how much income you’re replacing – depends on your actual income. For a self-employed worker, that can be a little more involved than for a salaried employee with a regular paycheck.

Then you need to figure out your monthly expenses. You’ll need enough disability insurance coverage to keep paying the bills, such as a mortgage payment or rent, credit card statements, and medical costs.

→ Learn more about disability insurance rates

Eligibility for long-term disability insurance

Beyond meeting basic health requirements – a pre-existing condition may make you ineligible for coverage from some insurers – long-term disability insurance companies require you to prove that you’ve been earning income as a self-employed or freelance person for two years. That means showing two years of tax returns from your business.

Depending on the type of business you run, you may have to show the respective tax document. For example, an S corporation would have to show its Form 1120S or Schedule K1.

A signed contract showing your earnings could also help demonstrate your income.

If you’re still at your full-time job, but you’re planning to make the jump to self-employment or freelancing, you should by your private disability insurance plan now. As long as you can afford the premiums, a non-cancelable, guaranteed-renewable long-term disability policy will continue to cover you after you’ve made the transition. That means the disability insurance company can’t cancel the policy or change the terms (including your monthly premium) as long as you pay for it.

→ How to find your best disability insurance company

Your policy's fine print

Make sure you get an own-occupation disability insurance policy. That means the definition of disability – what the insurance company considers being disabled enough to receive benefits – only requires you to be too disabled to continue working at your current job.

For example, if you become disabled as a freelance swordsmith, but you can still manage to work at a lower-paid, less physically demanding paralegal job, under an own-occupation LTDI policy, you’d be eligible to receive disability benefits because your occupation is swordsmith. But if you had an any-occupation policy, you wouldn’t be able to claim benefits if you can still work the paralegal job.

Partial disability benefits are crucial

Your disability coverage pays out when you’re so disabled that you can’t work and earn your regular income. But if you’re only able to work part time, your disability insurance policy would help cover some of the missing income from the hours you’re unable to work.

This is called a residual disability or partial disability benefit. Such a provision protects you while you’re rebuilding your business after a disability. For example, if a cancer patient isn’t able to work five days a week during their chemotherapy treatments, they’ll be able to ease back into work and build momentum while still having a safety net in place before they’re back to work full time.

Want to learn more? Read about our best disability insurance company picks for 2023.