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Disability Insurance for Self Employed

Licensed Life Insurance Agent/Staff Writer
April 10, 2020

Disability insurance provides income when you've been injured or come down with an illness that keeps you from working your normal job. Although life insurance tends to get more of the spotlight, disability insurance is as crucial—if not more crucial—than life insurance. This is because the average individual is far more likely to experience disability or sickness that keeps them from working than they are to die unexpectedly.

While many people may be able to purchase short- or long-term disability insurance from their employer as part of a group plan, those who are self-employed or unable to buy insurance through their employer can typically find individual disability policies on the market.

For more information on disability insurance and how it works, see our disability insurance 101 guide.

Individual disability insurance options for self-employed

Accident-only short term disability insurance if you're self employed

What is an accident-only short term disability insurance policy?

Accident Disability Insurance covers you for only an accidental injury, not in the case of illness. If you are not concerned with covering illness but believe you have a higher risk of injury due to an accident, this policy may be all you need.

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Short-term disability insurance if you're self employed

What is a short term disability insurance policy?

Short term disability insurance covers you for a shorter benefit period of 3, 6, 12 18 or 24 months. The monthly benefit maximum is typically lower than with long term coverage and the elimination period is short, with the quickest elimination period being 0 days for an accident and 7 days for a sickness.

Short term disability insurance is meant to provide a buffer for a short period of time so you can avoid a run on your rainy day fund, invading your savings, or using credit cards to get by. Ideally, you would want to also have long term disability insurance if you are self employed in case you disability lasts more than 90 days.

Long-term disability insurance if you're self employed

What is a long-term disability insurance policy?

Long-term disability insurance (LTD) is an insurance policy that replaces your income by paying you a tax free income benefit if you are totally disabled or partially disabled for an extended period of time, typically two or more years.

How does disability insurance replace income?

The disability insurance provider will use your income to determine the maximum amount of benefit you can qualify for within the policy you’re considering.  This is where you can customize your policy to meet your needs.

Disability insurance terms to know
  1. Income Benefit
  2. Elimination Period
  3. Benefit Period
  4. Own Occupation Definition of Total Disability
  5. Any Occupation of Total Disability

Your policy can be adjusted to accommodate your budget, your needs, your goals and objectives. You can raise or lower certain benefits to increase coverage and raise your premiums, or decrease coverage and decrease your disability insurance rates.

This customization of all these variables is one of the reasons why so many people can become confused when researching which kind of disability insurance policy is right for them. Don't worry though, we'll break it all down for you here.

The income benefit

The Income benefit is how much cash you receive monthly from the disability insurance company. The insurer will use a formula to determine the benefit amount you can qualify for. If you are totally disabled you will receive your income benefit, but not until after the elimination period.

The elimination period

Before your policy is issued you make the decision on how long or short of an elimination period you need. The longer the period extends, the lower your premiums—but the longer it will be before you get paid or receive a benefit from your disability insurance policy.

You can choose a short period of 30 days, 90, 180, 365, all the way up to 730 days. Once the elimination period ends you can start on your benefit period.

The benefit period

Your benefit period determines how long you will receive your cash if you remain totally disabled. Once again, the longer your benefit period, the longer you get paid, but the higher your disability insurance premiums will be.

Benefit periods can be as short as 1 year, 2 , 5, 10 years or to age 65 or to age 67, with some companies offering conditional benefit periods up to age 75.

Own occupation disability policy

All benefit payments will be dependent on you meeting the definition of total disability in your policy. Ideally, you want an OWN OCCUPATION definition of total disability. The own occupation definition for total disability requires that you are unable to perform the substantial and material duties of your regular occupation. Why does this definition matter? Because a true own occupation policy still considers you totally disabled if you are gainfully employed in another occupation so long as, solely due to injury or sickness, you are not able to work in your occupation.

Any occupation disability policy

With ANY OCCUPATION definition of total disability requires that you are unable to perform the substantial and material duties of any gainful occupation. That is a vague definition and applies to pretty much any work out there.

So, if you worked as a brain surgeon and injured your dominant hand in a car door, under the any occupation definition, you would not receive benefits if you became a consultant or some other job that was related to your field.

Other disability insurance terms to know
  • NonCancelable
  • Guaranteed Renewable

When you take out a private long term disability insurance policy the last thing you want to be worried about is the provider raising premiums on you. So, the remedy is to get a policy that is noncancelable.

Noncancelable means the premiums remain fixed for the life of the policy. The alternative is guaranteed renewable, which provides that the carrier reserves the right to raise premiums on a specific class down the road. You are guaranteed the right to renew your coverage until the policy end date, but the insurer reserves the right to raise your disability income insurance rates.

What next?

If you need help finding a disability policy, call an agent and they can help you out. Or, you can get a quote online with Breeze.

Written by
Alex Enabnit
Alex is a licensed life insurance agent who has appeared on Yahoo Finance, HealthPopuli, and Good Morning Arizona. He writes factual, useful, and occasionally amusing articles about life insurance. Believe it or not, he enjoys researching the intricacies of life insurance and helping people choose the best policies for their specific needs—almost as much as he enjoys kayaking and long hikes.