Disability insurance for the self-employed offers vital income protection in case of an unexpected illness or injury that hinders your ability to work, ensuring financial stability even when you can’t earn your usual income. Tailored to the unique needs of entrepreneurs, freelancers, and independent contractors, it’s a critical safeguard for anyone whose business depends directly on their personal ability to work.
- Private insurance companies offer disability insurance for self-employed workers.
- Self-employed individuals qualify for disability insurance similarly to employees, with access to comparable coverage options.
- Young, healthy self-employed persons typically enjoy lower disability insurance premiums, whereas those in high-risk jobs may face higher premiums.
What is disability insurance for self-employed?
Disability insurance for the self-employed is a type of insurance policy specifically designed for individuals who run their own businesses or work independently without the support of an employer-sponsored insurance plan. It serves to replace a portion of your income in the event that you are unable to work due to a disability, whether from illness or injury.
This kind of policy is essential for self-employed individuals because they do not have the safety net of employer-provided disability coverage that employees typically enjoy. It helps to mitigate the financial risk of lost income during periods when a self-employed person is unable to work.
How does disability insurance work if you’re self-employed?
Disability insurance provides a safety net for self-employed individuals, offering income replacement if an injury or illness prevents them from working.
To secure a policy, self-employed applicants must present evidence of their income, such as past freelance contracts and tax returns, which can be more challenging without regular paychecks.
This insurance helps cover essential expenses like housing, food, and childcare. It typically includes protection for various health issues, from chronic conditions to injuries, but excludes self-inflicted harm and pre-existing conditions.
For those self-employed, investing in long-term disability insurance is beneficial, as it can offer financial support for an extended period, potentially up to retirement age, unlike short-term policies which only cover a few months.
Types of Disability Insurance for the Self-Employed
Self-employed individuals can choose from two main disability insurance options: short-term and long-term. Both aim to replace income when sickness or injury prevents work. Understanding the key differences between them is crucial to picking the right one for your needs.
Short-term disability insurance helps with temporary conditions, offering benefits for a few weeks up to a year. It covers situations like recovery from surgery or healing after an accident. Often, pregnant individuals use this insurance to support themselves during the time before and after giving birth.
Long-term disability insurance provides benefits for an extended period, typically starting at two years and potentially lasting until retirement. This coverage supports policyholders who can’t work due to severe illnesses or injuries, like cancer, stroke, or arthritis, and it also extends to persistent mental health conditions that impact their ability to work.
Do you need business overhead expense insurance if you’re self-employed?
If you own a business, consider Business Overhead Expense (BOE) insurance. It’s a type of disability insurance that helps pay your business expenses, not your personal income. This insurance can cover your rent, utilities, maintenance, accounting fees, salaries, taxes, employee benefits, postage, and legal fees.
Useful disability insurance riders if you’re self-employed
Riders modify your disability insurance, adding or changing coverage. While some riders are included for free, others may increase your premium. Key riders for self-employed individuals include:
- Automatic Benefits Increase Rider: This boosts your monthly benefit periodically without needing a new medical check.
- Cost of Living Adjustment (COLA) Rider: Your monthly benefit grows by 3% to 6% annually to match inflation.
- Future Increase Rider: You can increase your coverage in the future without a new medical exam.
- Non-cancelable and Guaranteed Premiums: This ensures your policy remains in force with unchanged rates as long as premiums are paid.
- Partial Disability Rider: This provides a payout even if you can still work but your income is impacted.
- Retirement Protection Rider: This substitutes the retirement savings you would have made while employed.
- Student Loan Rider: This helps pay off your student loans.
Is disability insurance required if you’re self-employed?
As a small business owner, you aren’t obligated to have a private disability insurance policy for yourself, but you may need to offer it to your employees in some states. Only five states require this:
- New Jersey
- New York
- Rhode Island
You’re allowed to use a portion of your employees’ salaries to help pay for group disability insurance, but be aware that each state has its own regulations on how much you can deduct from their pay.
The Best Disability Insurance for Self-Employed Individuals
Best Overall: Northwestern Mutual
Northwestern Mutual stands out as the best overall choice for disability insurance because of its strong financial foundation and history of excellent customer service. Since 1859, they’ve built a reputation for reliability and offer tailored policies to fit the unique needs of self-employed workers and gig economy participants.
Pros & Cons
- Robust financial stability and a well-established reputation.
- Excellent customer support.
- Flexible and customizable disability insurance plans.
- Lack of online quote availability.
- Necessity to interact with a local agent for policy details.
- Agents are compensated through commissions.
Why we like it
With an A++ rating from AM Best for financial strength, Northwestern Mutual easily took the top spot. They offer a range of policy options that can be tailored to your needs, including coverage for specialized professions. However, not all features are available in every state.
They’ve streamlined their underwriting process, cutting it down from 28 days to just one for some applications and implementing technology that can eliminate the need for medical exams for certain applicants.
To start a claim, you can call Northwestern Mutual or fill out an online form. They’ll send you a claim kit by mail or email, aiming to make a decision within 30 days once they have all the necessary information and will keep you updated throughout the process.
Best Plan Customization: Guardian
Guardian earns the spot as the best for customizable plans due to its wide array of policy options. The company offers a variety of waiting periods and riders, allowing you to tailor a policy that aligns perfectly with your family’s specific needs.
Pros & Cons
- Strong financial foundation and trusted reputation
- Quick quotes available online
- Options to personalize your policy
- Underwriting and claims processes lack transparency
- Must complete the sign-up with a representative
Why we like it
Guardian stands out as a seasoned insurance provider, established in 1860, with top-tier financial stability rated A++ by AM Best. The company offers its services across all 50 states, though some specific product features might not be available in every location.
For self-employed and gig economy workers, Guardian provides both short-term and long-term disability insurance. Its online quote system is user-friendly, allowing you to quickly estimate costs, including prices for optional benefits like residual disability and cost of living adjustments.
Guardian’s disability insurance is highly customizable. A notable feature is the option to add extra benefits that cover student loan payments, a helpful tool for those with significant educational loans. The company’s disability plans can be tailored to include a range of additional benefits like premium waivers during unemployment or hospice care, and other valuable riders like partial disability and retirement protection.
Moreover, Guardian offers riders designed to safeguard you during different life events, including the option to increase your coverage in the future or waive premiums if you become unemployed.
Best Short-Term Disability: Mutual of Omaha
Mutual of Omaha stands out as the top choice for short-term disability insurance, especially for those seeking a flexible policy. Their offerings include essential benefits such as total disability income, partial disability support, and guaranteed renewability, ensuring comprehensive and adaptable coverage.
Pros & Cons
- Rapid online quote system
- Short waiting periods, starting from 30 days
- Customizable policy options
- Requirement to purchase a policy via an agent
Why we like it
Mutual of Omaha, established in 1909 and holding an A+ rating from AM Best for financial strength, is a well-known provider in the insurance industry.
To be eligible for coverage, you need to be aged between 18 and 61 and working at least 30 hours per week. Mutual of Omaha offers both individual short-term and long-term disability insurance policies, although availability may vary by state. Agents might receive a commission on policies sold.
For self-employed individuals seeking short-term disability coverage, Mutual of Omaha stands out with its inclusive benefits. The policy coverage for accidents can start immediately, and illness benefits are comparably flexible. A notable perk is a 15% discount for those with at least two years of self-employment.
While you can get a basic quote online, you’ll have to connect with an agent to finalize the application process. Policies can provide up to $20,000 in monthly benefits with the possibility of short waiting periods for temporary disabilities, and are guaranteed renewable until you turn 67.
Additionally, Mutual of Omaha offers Priority Income Protection, featuring a streamlined application process with a few days’ approval time and no need for a medical exam. This option comes with longer waiting periods and a maximum benefit cap of $2,000 per month.
Best Long-Term Disability: MassMutual
When seeking long-term disability insurance, it’s crucial to choose a policy that can provide dependable benefits up to retirement age. MassMutual stands out in this category, offering long-term disability insurance that can replace up to 65% of your income. This income replacement rate is more generous compared to what many other competitors offer.
Pros & Cons
- Established Company: MassMutual has a long history, indicating reliability and experience.
- Strong Financial Stability: With a robust financial background, MassMutual is well-equipped to meet claims.
- High Income Replacement: Offers up to 65% income replacement, providing substantial coverage.
- No Online Quote System: You cannot get a quote instantly online; the process is not as convenient as some competitors.
- Requires Agent Interaction: You must discuss your needs with a local agent to finalize the policy, which may not be ideal for those looking for a quick, direct purchase.
Why we like it
Founded in 1851, MassMutual stands out as one of the most established insurance providers, boasting the highest financial strength rating of A++ from AM Best. This indicates to self-employed professionals that MassMutual is a trustworthy choice with a strong ability to meet its insurance commitments.
MassMutual excels in offering long-term disability insurance, thanks to its solid history, financial reliability, and exceptional reputation. It distinguishes itself by providing up to 65% income replacement, a benefit that not many competitors can match.
The company also presents a variety of ways to tailor your long-term disability coverage. Depending on your location, you might be able to add riders for automatic benefit increases, protection against catastrophic disabilities, and options to secure insurability in the future.
Best For Ease of Online Application Process: Breeze
Breeze stands out for its swift and fully online application process, a feature highly appreciated by self-employed and gig-economy workers. This service allows you to quickly get a quote, apply, and obtain coverage, all from the convenience of your phone or computer — a process that can be completed within minutes.
What makes Breeze even more appealing is its clear underwriting policies for self-employed individuals. This transparency can be a significant advantage, as it eliminates the often required phone calls to unearth these details with other insurers.
Pros & Cons
- Quick and convenient online quoting and application process.
- Potential for rapid decision-making on coverage.
- No sales agents working on commission, reducing potential bias.
- Relative newcomer in the insurance market.
- Limited to disability and critical illness insurance offerings.
Why we like it
Founded in 2019, Breeze is the newest company we’ve examined. Despite its recent establishment, Breeze collaborates with the well-established Assurity Life Insurance for policy underwriting, which holds an ‘A-‘ rating from AM Best for financial strength.
Breeze offers both short-term and long-term disability insurance tailored for business owners, partners, and freelancers. Standing out for its digital-first approach, Breeze excels with an online application process that intuitively directs you to suitable coverage options.
The company adapts its recommendations for disability benefit periods and waiting periods to your specific circumstances. For those seeking coverage up to $5,000 per month, Breeze simplifies the process further by potentially waiving the medical exam requirement, especially for younger, healthier, and non-smoking applicants, who may receive immediate decisions.
Breeze’s online quotes are notably clear, helping you understand your potential policy details and whether a medical exam is necessary. Leveraging automated underwriting, Breeze may expedite the decision-making process for many applicants. Should you encounter any issues during the application, Breeze provides a fully operational support center with phone assistance and email support available.
Please note that the features of Breeze’s policies may not be consistent across all states.
When should self-employed people get disability insurance?
Securing disability insurance is simpler before transitioning to self-employment, as insurers require evidence of stable income for coverage eligibility — a challenge when earnings are not yet consistent. Similarly, self-employed entrepreneurs face complexities; insurers demand proof of income, which can be difficult as it often takes years for a new business to become profitable.
How much does disability insurance cost if you’re self-employed?
Disability insurance for the self-employed typically costs between 1% to 3% of your income. Factors like added riders, health history, age, and lifestyle can affect your rates. Use our disability calculator to find coverage that fits your budget and keeps insurance costs from eating into your income too much.
How to get disability insurance if you’re self-employed
If you’re planning to leave your job to become self-employed, consider getting disability insurance before you switch careers. Having a steady income makes the process easier. Here’s how you can secure disability insurance as a self-employed individual:
- Determine Your Coverage Needs: Decide on the coverage amount, how long you’ll receive benefits, and the waiting period after becoming ill or injured before benefits kick in.
- Review Optional Riders: You can add riders that offer extra protection for self-employed individuals. However, they are optional.
- Shop Around for the Best Quotes: Compare quotes from multiple insurers to find the most affordable plan.
- Complete an Application: Provide details about your work and business, along with other personal information.
- Participate in a Phone Interview: Discuss your medical history and lifestyle choices, such as smoking or engaging in high-risk activities.
- Undergo Underwriting: Have a medical exam, get a doctor’s statement, and provide proof of income, like past contracts and tax records.
- Finalize and Activate Your Policy: Once underwriting is complete, which may take several weeks, sign and return your policy to begin coverage.
Frequently asked questions
Can you get disability insurance if you’re self-employed?
Even as a self-employed individual without a regular paycheck, you can still obtain disability insurance. However, proving your income may be challenging, which is a necessary step to secure coverage.
How much disability insurance do self-employed workers need?
The amount disability insurance covers is typically up to 60% of your pre-tax earnings. If this isn’t sufficient to manage your usual expenses, you have the option to enhance your coverage with supplemental disability insurance.
Is disability insurance a business expense if you’re self-employed?
For self-employed entrepreneurs, the disability insurance provided to employees may be deductible as a business expense. However, your personal disability insurance policy is not considered a business expense for tax purposes.