If you were unable to work, could you survive without an income? Even if you could scrape by for a few months, how long could your savings sustain you without an income? The answer is likely not long enough.
That’s where disability insurance comes in. If you were unable to work, disability insurance could be the saving grace that keeps your finances intact.
Unfortunately, you never know what life has in store for you.
In terms of disability insurance, it is better to err on the side of caution and even just begin to look into a disability insurance policy through Policygenius. And yes, it is especially important as a self-employed individual that can’t rely on a cushy W-2 safety net.
Here’s what you need to know about disability insurance.
What is disability insurance?
Disability insurance protects your income in case you are unable to work due to an injury or illness. The details of each policy will vary. But the bottom line is that if you are unable to work then your policy can help to cover your expenses.
Let’s say you are a freelance graphic designer that has built a successful business over the year. You’ve created a flourishing business, but you have to work in order for it to earn any money. If you get into a car accident that disables you in some capacity, then disability insurance would kick in.
Why do you need disability insurance if you’re self-employed?
Unless you’ve hit financial independence, then disability insurance is an absolute necessity. It is especially critical if you are self-employed.
Without an income, you may not be able to meet your financial obligations. As the bills pile up, you may be powerless to take care of them when a disability strikes. Unfortunately, it is even more true for self-employed individuals that often have to rely on themselves to power an entire company.
With a disability insurance policy, you won’t have to worry about the financial consequences of a disability. Instead, you can focus on your health and cover your bills with your insurance policy.
What does disability insurance cover?
As you explore your options for disability insurance, it is important to note that there are two kinds of policies. Each of these is useful in different scenarios. Here’s the breakdown:
Short-term disability insurance
Short-term disability insurance can help you cover the bills for a short period of time. In most cases, these policies will range in length for the two to five years. When you run into an illness or injury, the policy will generally cover a few weeks to a few months of income.
Since this is a short-term policy, it is best for those that intend to be out of work for a short period of time. For example, a scheduled surgery or planned childbirth could be covered under a short-term disability insurance policy.
Although the policy will not last forever, it can help make it through short bursts of disability-related unemployment.
Long-term disability insurance
As the name suggests, long-term disability insurance is there to help on a more prolonged or even permanent basis. If you are disabled for a long period of time, then a long-term disability policy can help.
Of course, no one expects to be disabled for an extended period of time. But with a long-term disability insurance policy in place, you won’t have to worry about the bills while you focus on recovery.
Typically, long-term disability insurance will not kick in until 90 days of being unable to work due to a disability. Different policies will offer different coverage lengths that can range from several years or until you reach retirement age.
What to look for in your coverage
Shopping around for disability insurance is critical. But you should determine what you want out of a policy before you start shopping. Let’s talk about what you need to look for in your new policy.
How much coverage do you need?
First and foremost, you should determine the amount of coverage you need. After all, the whole point of disability insurance is that you will continue to receive an income even if you are disabled. With that, it is important to decide how much coverage you want out of a disability policy.
Start by taking a close look at your budget. Decide what is absolutely critical to your survival and what you can cut. What income do you need to comfortably survive?
Once you figure out that number, you’ll be better prepared to shop for a disability insurance policy. It is extremely rare for an insurer to provide coverage for your entire income. But typical policies will usually cover at least 50% of your income.
Waiting period restrictions
Unfortunately, disability insurance policies will not typically kick in right away. Instead, you’ll have to undergo a waiting period before you start to receive any benefits.
With a shorter waiting period, you should expect a higher premium. With a longer waiting period, you can enjoy lower premiums.
You should choose a waiting period that can be supported by your savings. For example, let’s say you have an emergency fund that can sustain you for six months. You might not need the waiting period to expire until the six-month mark. Assess your personal savings to decide on a waiting period that will work for you.
Own occupational clause
If you are injured or ill, then you might not be able to work in your current job. But you might be able to hold another type of position.
Most insurance policies will have a clause that specifies your occupational responsibilities. You might be covered under disability insurance for the first two years that you cannot work in your current occupation. But if you are able to work in another occupation after the two-year mark, then you may no longer qualify for disability insurance for the remainder of the policy.
For example, you might not be able to SCUBA dive due to a ruptured eardrum in your job as an environmental consultant. But maybe you can still wait tables at a local restaurant. Depending on your occupational clause, you might be forced to pursue a job in another field instead of focusing on your recovery efforts.
Make sure that you are comfortable with stipulations of your occupational responsibilities set forth in a contract before signing on the dotted line.
Partial disability clause
Some disability insurance policies offer a partial disability clause. With this, you would be eligible to receive a lower benefit if you were unable to work full time.
For example, let’s say you are only able to work your business three days a week due to draining recovery efforts. With a partial disability clause, you would still be eligible to receive some financial assistance from your policy. Although you can still work part-time, this will help to make up the difference in your income.
Although this clause is often overlooked, it can be a valuable lifeline should you run into a disability.
As you shop around, make sure to choose a guaranteed policy. That means that your policy will be automatically renewed if you pay your premiums on time. Otherwise, you run the risk of a canceled policy with impossibly inconvenient timing.
You don’t want to live a horror story of a canceled policy and a disability converging on your life at the same time.
How much does disability insurance cost?
The cost of disability insurance ranges widely based on the features you choose. Here are a few factors that can affect the cost:
- Occupational class. Some jobs are more dangerous than others. For example, someone working on an oil rig has a higher occupational hazard than someone that works from a computer. Although it can be a little bit more difficult to obtain disability insurance in a high-risk occupation, it is still possible. You should expect to pay a higher premium if you have a high occupational risk.
- Waiting period. If you choose a longer waiting period, then you might be able to lower your premiums.
- Benefit amount. The amount of coverage your policy provides will affect your rates. A higher benefit amount will lead to a higher premium cost.
- Health and age. Your health and age can significantly impact your premium cost. If you are relatively healthy, then you might find lower premium costs.
Although there are several factors that can affect your premiums, you can find the best rate by shopping around (more on this below).
Where to get disability insurance
If you want to find a disability insurance policy as a self-employed individual, there are several options. Here is a look at my two favorite resources:
Policygenius is an independent insurance broker that can connect you with a variety of policy options. As an independent broker, the platform is not locked into offering insurance policies for a single company. Instead, it can provide you with a range of options that might suit your needs.
If you want to work with Policygenius, you’ll be pleasantly surprised by the straightforwardness of the platform. The free platform will ask you a series of questions. Then it will provide you with several options. At that point, you can comparison shop for the best policy for your situation.
Breeze is a relatively new insurance company that offers disability insurance through an online platform. But the company works closely with Assuiry Life Insurance which has almost $18 billion underwritten in life insurance policies. With that, you can trust the policies offered by Breeze.
You can obtain a disability insurance quote from Breeze in just a few minutes. After filling out a series of questions, you’ll find out what your coverage options are through this company.
You’ll find a flexible array of policies with built-in features that work to protect you even further. A few of their built-in features include partial disability, home modification, and survivor benefits. All of these are worthwhile! Overall, Breeze offers useful policy options for self-employed individuals.
How to protect yourself beyond disability insurance
Disability insurance can help to protect your future income. After all, you never know what life has in store for you. But disability insurance can only take you so far.
Although the coverage can help to support you, the reduced income might not be enough. Or the policy might run out of coverage before you are ready to return to the workforce. With that, it is critical to create a contingency plan.
Disability insurance is a useful way to protect your income. If you are self-employed or have a job with a high rate of injury, then this type of insurance is definitely something you should add to your financial toolbox.