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How to Get Disability Insurance When You’re Self Employed

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Gigly team, Marketing at Gigly
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There’s something incredibly empowering about working for yourself. Whether you’re a small business owner, an independent contractor, a freelancer, or a gig worker, having the autonomy to work when, where, and how you want is an incredible feeling.

But the freedom and flexibility of being your boss come with a few small downsides …

For one, you can say bye-bye to your tax refund — you’ll have to pay income taxes, self-employment taxes, and social security taxes to the IRS instead. Without employer benefits, paid time off is no longer a thing, and you’ll have to find your health insurance policies.

And what if you become ill or get injured?

You could lose your entire revenue stream — unless you have disability insurance.

Not sure how disability insurance works?

Don’t think you can afford the added expense?

As a self-employed person, disability insurance is much more important (and affordable) than you may think.

Ready to learn what it’s all about?

Here’s everything you need to know about disability insurance and how to get it when you’re self-employed.

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Learn how to obtain self-employment insurance in your field:

Freelance Disability Insurance | Freelance Ghost Insurance | Freelance Workers Comp Insurance | Freelance Critical Illness Insurance | Freelance E&O Insurance | Freelance Airbnb Host Insurance | Freelance Commercial Auto Insurance | Freelance Commercial Property Insurance | Freelance Utah Home Insurance | Freelance Amazon Flex | Freelance Carpet Cleaning Insurance | Freelance Window Cleaner Insurance | Freelance Pressure Washer Insurance | Freelance Electrician Insurance | Freelance Mechanic Insurance | Freelance Junk Removal Insurance | Freelance Bartender Insurance | Freelance Hair Stylist Insurance | Freelance Barber Insurance | Freelance Taskers Insurance | Freelance Web Designer Insurance | Freelance Doordash Driver Insurance | Freelance Uber Driver Insurance | Freelance Plumber Insurance | Freelance Writer Insurance


What is Disability Insurance?

So what exactly is disability insurance?

Disability insurance is a way to protect your future income, money that you haven’t even earned yet. Should you become injured, ill, or disabled in a way that prevents you from working, disability insurance allows you to collect part of the income you would have made if you were able to work.

Disability insurance is disability income insurance.

It is not health insurance to pay for medical coverage if you become disabled. It’s not medical coverage to pay for long-term care either.

It is income insurance that allows you to earn up to 60% of your regular pay when you’re unable to work because of an illness or injury.

Social Security Disability Insurance Isn’t Enough

Some people think that if they become disabled, they can rely on the Social Security Administration (SSA) for Social Security disability benefits. Yet, Social Security Disability Insurance (SSDI) benefits through the SSA have limits.

As of 2021, the average monthly benefit that disabled persons collect through social security benefits is about $1,280 per month or around $320 per week.

But relying on this is problematic for two reasons:

For one, you have to have worked five years full-time out of the last ten years, and gig workers often have a hard time proving that they’ve done so.

Secondly, for freelancers and gig workers who make a more substantial income, this is usually far less than the amount needed to pay your rent or mortgage, cover monthly expenses, and save money for retirement.

The Social Security Administration also offers disability benefits known as Supplemental Security Income (SSI), but those will cap at $841 per month starting in 2022.

To qualify for SSI benefits, you do not need to prove any prior work history, but you must prove that you have a limited income and limited assets.

You must also meet the following criteria:

  • Have a severe disability that limits your functions and
  • Experience a disability that prohibits you from doing any type of work whatsoever and
  • Have an illness or injury that’s expected to result in death or
  • Have an ongoing condition that lasts more than twelve months

Here’s the bottom line:

If you become sick, injured, or disabled in a way that prevents you from earning income, Social Security benefits probably won’t be enough to sustain you.

But with disability insurance coverage, you can protect yourself and continue to earn enough each month to pay all your current financial obligations.


The Different Types of Disability Insurance

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There are two main types of disability insurance policies:

Short-term disability insurance and long-term disability insurance.

As the names suggest, short-term policies pay benefits for a short amount of time, usually between six and twelve months. Long-term policies can yield benefits for two years, five years, ten years, or up until your retirement age.

There are also group policies and individual policies. Group policies are usually through an employer, and since self-employed workers don’t have an employer — they’re no longer an option.

Self-employed individuals will need to get an individual disability insurance policy. The good news is that individual policies offer far more benefits and allow you to customize a plan to meet your unique needs.

Speaking of Insurance, we explore COBRA options for the self-employed too.


How Does Disability Insurance Work

Getting a disability insurance policy is similar to getting any other type of insurance policy:

  1. You shop around for carriers
  2. Compare rates among insurance companies
  3. You go through the application process
  4. The policy gets underwritten
  5. You get coverage

It’s pretty simple.

The only difference between getting disability insurance and getting auto, renter’s, or homeowner’s insurance is that you’ll need to undergo a health screening.

Don’t worry; it’s not a painful or invasive process. A disability insurance health screening involves a simple medical evaluation and a review of your medical history and health records.

Why?

Because if you have pre-existing medical conditions, you’re at a greater risk. The more of a risk you are, the more the insurance companies will charge you for coverage.

Once you’re covered, you can file a disability claim at any point after you become ill or injured. Once your insurer approves the claim, you can start collecting benefits.


How Much Disability Insurance Do You Need?

Most disability income insurance policies offer coverage up to 60% of your pay. If you’re a self-employed freelancer or own your own business, 60% tends to be pretty equivalent to your net earnings and the net profit you claim on your IRS income tax return.

That means you can pretty much enjoy the same monthly take-home pay that you were earning when you were working in your regular job.

How much disability insurance you need depends on how much you make, so it’s up to every individual to determine the right amount of coverage for them.


How Much Does Disability Insurance Cost?

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There are all sorts of factors that affect the cost of disability insurance premiums. Some are things that you control, and some are things that you cannot.

Those uncontrollable factors include your:

  • Job title
  • Location
  • Gender
  • Age
  • Current health status

Women pay more. Older people pay more. People with pre-existing conditions pay more. If the insurance companies deem your work activity to be higher risk, you’ll pay more.

There are also a variety of factors that affect the cost of monthly disability insurance premiums that you can control:

  • The definition of disability that you select
  • How much you need in monthly benefits
  • The benefit period you select
  • The elimination period you decide on
  • Optional riders that you choose to add

Not sure what any of those things mean? Let’s explain …

The Definition of Disability

Every policy has a definition of disability. To be eligible to collect your disability insurance benefits, you have to meet the standard of disability as stated in that definition.

There are two main definitions, and the one you choose can make a massive difference in the amount you’ll pay each month. The definition you choose also affects how likely it is that you’ll ever be able to collect the benefits you’re paying for.

Any-Occupation

The “cheapest” definition is any-occupation. This definition of disability means that to collect your monthly benefits, you have to be disabled in a way that prevents you from working in any job.

Maybe you’re a rideshare driver with a foot injury that prevents you from hitting the brake. Perhaps you’re a freelance writer or photographer with a wrist injury that prevents you from typing or holding your camera.

These injuries can take you out of the game and make it impossible to do the work you do. But with an “any-occupation” definition of disability, you won’t be able to collect benefits.

Why?

Because these injuries won’t prevent you from working as a barista, a retail clerk, or a telemarketer. To collect benefits under this definition, you need to lose the ability to perform ANY job that exists, and that’s a tough standard to meet.

Own-Occupation

The definition you want (aka the definition that makes it easy to collect benefits) is “own-occupation.”

With this definition, you’ll be eligible to collect benefits as long as your injury prevents you from doing all or part of your current job.

A rideshare driver with a broken foot can collect benefits under this definition. A freelance photog with a wrist injury can collect benefits with an own-occupation policy. An independent contractor that paints houses for a living can collect benefits if they’re unable to stand on a ladder or hold a paintbrush.

The own-occupation definition will cost you more in monthly premiums, but it’s worth it. Even a slight impairment can make you eligible to collect the benefits you deserve!

Coverage Amount

The amount of money you want to receive in payouts each month is a significant factor in how much your premiums will cost. The higher the coverage amount you need, the more your premiums will cost.

Most insurance companies cap disability insurance benefits at about 60% of your pay. If you have some flexibility in your budget and can pay more for your monthly premiums, it’s worth it to get the highest amount of coverage possible.

Benefit Period

The benefit period is the duration of time in which you can collect benefits. Depending on the insurance company and type of policy you choose, this can range from two years up until retirement age.

Elimination Period

The elimination period, or waiting period, is the time between which you get ill or injured and the day you can start getting benefit payouts.

Elimination periods vary from 30 days up to 720 days. Shorter elimination periods mean you can collect benefits sooner, but they also cost you more.

Riders

Regardless of which insurance company you choose, they’ll present you with a list of “riders” that you can add to your policy. These are additional terms and clauses that you can tack onto your policy, and each one you add will cost you more.

Most insurers will encourage you to add the COLA rider. This is the cost of living adjustment.

For a small monthly fee, the COLA rider will increase your monthly benefit to account for rising inflation. That may not seem like a pressing issue today, but as inflation grows, every dollar you earn now will be worthless in the future. Of all the riders you can add, this is one of the most important.

Another critical rider to add is the future increase option (FIO). This allows you to increase coverage in the future without having to undergo a new health screening or start a new policy.

If you’re still paying off student loans from college, you might want to consider adding the student loan repayment rider as well. This will add to your monthly premium and pay extra on top of your monthly benefit — coverage that will go directly to paying off student loans.

Related: Dental Benefits and the Self-Employed


Where to Get Disability Insurance

Disability insurance can be a complicated thing to navigate.

If you want an own-occupation definition of disability, there are six leading companies to choose from:

  • Ameritas
  • Guardian
  • Principal
  • Mass Mutual
  • The Standard
  • Ohio National

These are the only six companies that offer the own-occupation definition, so these are the best options to choose from.

If you’re ready to get disability insurance, you can contact companies directly for a quote or reach out to a local broker that can give you multiple quotes at once.

No matter how you choose to buy disability insurance, it’s THE best way to protect your future, unearned income. Disability insurance ensures you still bring in a “paycheck” even if you’re too sick or injured to work.


Conclusion

Don’t make the mistake of relying on social security disability insurance to cover your costs during a difficult time. Social Security disability payouts are capped, hard to qualify for, and usually not enough to cover the expenses that you already have.

Independent contractors, freelancers, and gig workers also need health and wellness benefits, and access to financial and legal tools that traditional employees don’t have to worry about on their own.

To learn more about benefits that can help you protect your business, income, health, and future, contact Gigly now.