Whether you’re a self-employed freelancer, consultant, or entrepreneur, disability insurance can replace your income if an injury or illness leaves you unable to work, making it crucial financial protection.
But disability insurance can be expensive if you’re self-employed, and coverage might not be right for everyone. If you’re interested in long-term disability insurance, you can find affordable rates by comparing quotes from different companies before buying a policy.
How does disability insurance work if you’re self-employed?
Disability insurance for self-employed people works mostly the same as it does for anyone else — you buy it before you need it, and then if you’re hurt or injured and can’t work, it will pay out to replace the income you’re not earning.
When you apply for disability coverage, be prepared to show the insurance company proof of your income history, like freelance contracts for past assignments and tax returns, before you can get a policy. This part will be more complicated for someone who’s self-employed and doesn’t have a regular paycheck.
You can use your disability insurance to keep up with your expenses, like your mortgage or rent, childcare, groceries, and other day-to-day needs.
Disability insurance covers most injuries and illnesses, like chronic pain, broken bones, and complications from pregnancy or childbirth. It won’t cover intentional self-inflicted injuries or any pre-existing conditions, meaning an injury or illness you already had when you signed up for coverage.
It's worth having long-term coverage if you’re self-employed. A long-term disability policy can pay out for years, even until you’re of retirement age. Short-term insurance (the alternative to a long-term policy) only pays benefits for between three and six months.
What kind of disability insurance do self-employed people need?
Own-occupation disability insurance is the best way to protect your finances if you’re self-employed. That’s because an own-occupation policy lets you keep collecting benefits even if you can do another job, as long as you’re unable to go back to the same job you had before you got hurt or sick.
For example, if you’re a freelance consultant who travels from one jobsite to another and you suffer an injury that prevents you from traveling, you can still get benefits from an own-occupation policy even if you get a job in another field.
It’s also worth adding partial or residual disability coverage to your policy. Partial disability means your policy will pay out if your disability affects your income at all, even if you can still work.
Do you need business overhead expense insurance if you’re self-employed?
You may need business overhead expense insurance (BOE) if you’re a self-employed business owner. Business overhead expense insurance is a kind of disability insurance that covers your business’s expenses, but not your own income as the business owner.
Business overhead expense insurance can cover things like your:
Rent and utilities
Maintenance fees
Accounting fees
Salaries
Payroll and property taxes
Employee benefits and workers compensation
Postage
Legal fees
Useful disability insurance riders if you’re self-employed
Riders are features that change your disability insurance coverage. Some riders are free, while others cost extra to add. Some common riders that may be useful if you’re self-employed include:
Automatic benefits increase: Regularly increases your monthly benefit without another medical exam.
Cost of living adjustment (COLA): Increases your monthly benefit by 3% to 6% every year to keep up with inflation.
Future increase rider: Lets you add more coverage later on without having to go through another medical exam.
Non-cancelable/guaranteed premiums: Keeps your disability insurance active and your rates the same as long as you keep paying your premiums on time.
Partial disability: Pays out if an accident or illness affects your income but you can still work.
Retirement protection: Replaces the contributions that you made to a retirement fund while you were working.
Student loan rider: Makes payments towards your student loans.
Is disability insurance required if you’re self-employed?
You’re not required to get your own private disability insurance policy, but you might have to provide disability insurance for your employees if you run a small business.
Only a handful of states require you to provide disability insurance for your employees.
California
Hawaii
New Jersey
New York
Rhode Island
You can use a certain amount of money from your employees to offset the cost of your group disability insurance, but every state has rules about how much you can deduct from employee payrolls.
When should self-employed people get disability insurance?
It’s easier to get disability insurance before you become self-employed. That’s because insurance companies need to verify your average income before you can get coverage — which can be hard if you’re not yet making consistent money.
It’s just as complicated for most self-employed entrepreneurs. Insurance companies want to see proof you draw an income before you can get a policy. The problem is that it can take years for a new business to make any money.
How much does disability insurance cost if you’re self-employed?
The cost of disability insurance when you’re self-employed is anywhere from 1% to 3% of your income. Your rates can change based on the riders you add, your medical history, age, and lifestyle.
You can use our disability calculator to find affordable coverage and avoid having the cost of your disability insurance cut into your income too much.
Best disability insurance companies if you’re self-employed
It’s worth finding a disability insurance company with a history of working with someone like you. If you’re a self-employed entrepreneur, for example, your company should have experience working with other business owners.
Some of the best disability insurance companies include:
What we like … | BBB | AM Best | |
|---|---|---|---|
Includes a survivor benefit for your beneficiary. | A+ | A | |
Includes a vocational training benefit. | A+ | A- | |
Offers lifetime continuous benefits for total disabilities, even after the policy expires. | A+ | AA+ | |
Offers a lump-sum payment of $62,400 in addition to regular benefits if you're presumptively disabled. | A+ | A+ | |
Includes a family care benefit if you have to take care of a sick loved one. | A+ | A |
How to get disability insurance if you’re self-employed
If you’re thinking of leaving your job and becoming self-employed, you should know that getting disability insurance is easier while you still have a regular income. It can be worth getting coverage before you change career fields.
But once you make the move to self-employment, you can get disability insurance by following these steps:
If you’re self-employed and own your own business, you also need to decide if you want to get business overhead expense insurance. The process for getting business overhead expense insurance is similar to getting personal disability insurance, except your insurance company will ask to verify your company’s financials.
Frequently asked questions
Can you get disability insurance if you’re self-employed?
Yes, you can get disability insurance even if you’re self-employed and don’t collect a regular paycheck, though it can be hard to get disability insurance if you can’t verify your income.
How much disability insurance do self-employed workers need?
It depends on what you make and what your typical expenses are. Disability insurance usually covers up to 60% of your pre-tax income, but you can add supplemental disability insurance if that's not enough to cover your expenses.
Is disability insurance a business expense if you’re self-employed?
It can be. If you’re a self-employed entrepreneur, the disability insurance that you provide for your employees can be a business expense. Your personal disability insurance policy isn’t a business expense, though.
