What Is Disability Insurance for the Self-Employed?
Self-employed workers can benefit greatly from having disability insurance. If you’re self-employed, you can qualify for a disability insurance policy from a private insurer. The younger and healthier you are, the less expensive your disability insurance premiums will be.
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- Updated: March 15, 2023
- 6 min read time
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- Disability insurance is available to self-employed workers through private insurance companies.
- Self-employed people can qualify for disability insurance in similar ways as employees, and the types of coverage they can access are comparable.
- A self-employed person who is young and healthy will likely have lower premiums for disability insurance, while a self-employed worker in a high-risk occupation will likely have higher premiums.
Disability insurance provides protection of a person’s livelihood if they become sick or injured and cannot work. Because self-employed people have no sick days or paid vacation to fall back on, disability insurance can be especially important.
If you have your own business, you might want disability insurance to protect yourself and keep your business going. “One of the most common uses of disability insurance is to protect business owners,” said Certified Financial PlannerTM Mark Hayes, “not only to offset their personal income, but also to provide for fixed business expenses in order to keep the lights on during the owner’s period of disability.”
When considering purchasing disability insurance as someone who is self-employed, it’s important to account for factors such as qualifying for a policy, the types of disability insurance, what disability insurance covers and how much it costs.
While disability insurance is important for anyone who is employed and earns an income, it is especially important for those who are self-employed. Just as they depend on themselves for their job, they also need to depend on themselves for protection of their income if they become disabled.
How To Qualify for Disability Insurance If You’re Self-Employed
Qualifying for disability insurance as a self-employed person isn’t necessarily more difficult than qualifying as an employee. Because you can’t access an insurance plan through your employer, you’ll have to purchase a plan through a private insurance provider, unless you can qualify for government-sponsored programs like Social Security Disability Insurance (SSDI).
Insurance companies use certain characteristics to determine whether a person qualifies for disability insurance, as well as how much they’ll pay in premiums. Details like your occupation, age, sex, health status and income factor into the insurer’s coverage decisions.
If you have certain pre-existing conditions, you may be denied coverage for disability insurance. This includes serious illnesses like cancer, blood disorders, multiple sclerosis or arthritis. Even conditions as minor as fatigue or vertigo can be enough for your application to be rejected, as these symptoms can sometimes lead to further complications.
Your insurance provider will assess your income to determine the amount of coverage you’ll receive. The financial underwriting process for disability insurance is the same for self-employed individuals as it is for employees.
When you apply, you’ll submit tax returns to prove your annual gross income. The underwriter will also consider your net worth and if you’ve ever filed for bankruptcy. For business owners, the insurance provider will consider the company’s annual income and number of employees.
Types of Disability Insurance for the Self-Employed
Self-employed people can access the same two types of disability insurance as employees: short-term disability insurance and long-term disability insurance.
Both types of disability insurance are designed to replace lost income if the policyholder becomes sick or injured and is unable to work. However, there are important differences between the two. It is essential to understand how these two types of insurance work to know what’s right for you.
Short-term disability insurance provides benefits for illnesses and injuries that will resolve after a brief amount of time. Typically, the benefits on a short-term plan last between a few weeks and a year.
Conditions covered by short-term disability insurance include surgery recovery or injuries from an accident. Short-term disability insurance is sometimes used by pregnant people for recovery time before or after childbirth.
A long-term disability policy offers benefits over a longer span of time, usually two years or greater. The benefits might even last until the policyholder reaches retirement age.
Long-term disability insurance covers more serious illnesses and injuries, such as cancer, stroke, or arthritis. The coverage can also be used for ongoing mental health issues that prevent someone from working.
Coverage of Disability Insurance for the Self-Employed
Disability insurance covers the income you might lose if you become disabled and cannot work. No disability insurance policy will replace all the wages you’re losing, but it will pay out a percentage of your monthly income.
The percentage of your income that disability insurance will replace depends on which policy you choose. Short-term disability insurance plans tend to supply a higher percentage, up to 80% of your income. A long-term plan will replace less income but could still pay up to 60% of your monthly income. Self-employed individuals can typically qualify for a higher percentage of their income than W2 employees.
For self-employed people, the Freelancer’s Union recommends looking for a policy that covers about 50% of your monthly income after your business deductions.
It’s important to note that disability insurance replaces income you would have earned had you been working. Because of this, most policies won’t pay benefits once you reach retirement age. Disability insurance also will not cover any medical treatments or long-term care services you might need while disabled.
Costs of Disability Insurance for the Self-Employed
Disability insurance can be very affordable for self-employed people. The costs of a policy vary considerably based on your age, health status and income.
Monthly income is especially important for determining disability insurance premiums. Because the benefits of disability insurance are a percentage of your income, those who earn more will end up paying higher premiums for coverage.
Age and health are the other main factors in calculating premium amounts. If you are relatively young and healthy, you’ll likely have a lower premium than you would if you were older or had health problems. People with pre-existing conditions can often still get disability insurance, but the company will place an exclusion in the policy that prevents a payout if the disability is related to the pre-existing condition.
The final element in disability insurance cost is the elimination period. The elimination period is how long you’ll have to wait to receive benefits after you become disabled. Some policies begin benefits after 30 days, while others might have a 90-day elimination period.
The following table shows monthly premium costs for disability insurance for self-employed people. These policies all have a 30-day elimination period.
Minimum Annual Salary Required
Monthly Premium Amount
Popular Companies Offering Disability Insurance for the Self-Employed
Self-employed people can access disability insurance plans from privately-owned companies. When purchasing an insurance policy, consider researching different insurance providers online to learn about the features of the policies they offer.
- A newcomer to the insurance industry, Breeze was founded in 2019. The company tailors its insurance products towards workers in the “gig economy,” such as freelancers and contractors.
- Guardian primarily offers disability insurance to employees who are covered by their work-sponsored policies. However, the provider does have policy options for independent contractors and business owners with only a few employees.
- Illinois Mutual
- Illinois Mutual’s disability insurance offerings include plans for self-employed workers and small-business owners.
- Mutual of Omaha
- Mutual of Omaha is an old standard with many decades of experience in offering disability insurance. The provider’s agents help customers find affordable solutions based on their needs and budget.
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6 Cited Research Articles
Annuity.org writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.
- Masterson, L. (2023, January 18). Disability Insurance: Learn Why You Need It. Retrieved from https://www.insurance.com/health-insurance/disability-insurance.aspx
- Rozdeba, G. (2022, September 5). Disability Insurance for Self-Employed Workers. Retrieved from https://www.dundaslife.com/blog/disability-insurance-self-employed#toc-can-i-get-disability-insurance-if-i-am-self-employed-
- Fraraccio, M. (2022, August 25). Short-Term vs. Long-Term Disability: What’s the Difference? Retrieved from https://www.uschamber.com/co/run/finance/short-term-vs-long-term-disability
- Price, L. (2022, March 29). Is There Disability Insurance for Self-Employed? Retrieved from https://smallbiztrends.com/2022/03/disability-insurance-for-self-employed.html
- Administration for Community Living. (2020, February 18). What Is Covered by Health & Disability Insurance? Retrieved from https://acl.gov/ltc/costs-and-who-pays/what-is-covered
- Freelancers’ Union. (n.d.). Secure Your Income. Retrieved from https://www.freelancersunion.org/insurance/disability/
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