Cost & Coverage
We make it easy to compare and buy insurance.LEARN MORE
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.
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 is often overlooked because workers don’t understand how it will benefit them. Long-term disability insurance (LTDI) 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.
But 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.
Your long-term disability coverage is largely determined by your income. How much coverage you need – how much income you’re replacing – plays a big role in your policy and what you’ll pay for it each month. That means figuring out how much you make. 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.
Long-term disability insurance is important. Even though self-employed workers may have to do a little more legwork initially to get a policy in place, independent agents or brokers can help you figure out your coverage needs and what policy is best for you.
Disability insurance is meant to replace your income when you become disabled.
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, purchase your disability insurance policy 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.
When you’re self-employed, if you can’t work you can’t make money. Maybe you’re a freelancer who is relying on contract work, or maybe you’re a small business owner who is one of only two or three people running the company.
Either way, building the same safety net afforded to salaried employees starts with long-term disability insurance. It protects your own income, and can protect your business, too. It’s important to have, and you should make sure it’s affordable.
How can you do that? By looking at the elimination period and the benefit period.
The elimination period, or the waiting period, of an LTDI policy is how long a policyholder has to wait after becoming disabled before they’ll begin receiving benefits. This is usually somewhere between a month and a year, with most people opting for 90 days. Choosing a longer elimination period – that is, having to wait longer until you begin to receive benefits – usually results in lower premiums.
The benefit period is how long you’ll receive benefits. The longer the benefit period, the more expensive the policy. The benefit period can last until retirement, but the average disability lasts for three years, meaning that a five-year benefit period will cover most people and help make protection affordable.
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.
Short-term disability insurance can also be helpful, but it’s often unavailable for many self-employed workers. It’s usually more economical to have a long-term disability policy for bigger liability scenarios and pair it with an emergency fund to cover your short-term needs.
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 in your LTDI policy can protect 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 working full time.
Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.
Security you can trust
Yes, we have to include some legalese down here. Read it larger on our legal page. Policygenius Inc. (“Policygenius”) is a licensed independent insurance broker. Policygenius does not underwrite any insurance policy described on this website. The information provided on this site has been developed by Policygenius for general informational and educational purposes. We do our best efforts to ensure that this information is up-to-date and accurate. Any insurance policy premium quotes or ranges displayed are non-binding. The final insurance policy premium for any policy is determined by the underwriting insurance company following application. Savings are estimated by comparing the highest and lowest price for a shopper in a given health class. For example: for a 30-year old non-smoker male in South Carolina with excellent health and a preferred plus health class, comparing quotes for a $500,000, 20-year term life policy, the price difference between the lowest and highest quotes is 60%. For that same shopper in New York, the price difference is 40%. Rates are subject to change and are valid as of 2/17/17.
Copyright Policygenius © 2014-2019