Disability Insurance for the Self-Employed

Joseph Meyer
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Table of Contents

Types of Disability Insurance Policies

You can purchase disability insurance in two forms: short-term and long-term disability insurance. The policy type you select will have an impact on the cost of your premiums and on the length of time you can receive benefits.

Short-term disability insurance (STD), the cheaper of the two, provides benefits for six to eighteen months. You can also purchase short-term disability insurance with a paid leave option, which includes sick days that you can roll over throughout the year.

Long-term disability insurance (LTD) covers your income for more than two years. The length of coverage will depend on the duration of your disability. It also offers a lifelong benefit.

Standard policies pay a percentage of your pre-disability income up to a specified maximum. Some policies will also pay a percentage of your income while you are on unpaid leave.

Short Term Disability Insurance Policy

While employer-paid short term disability insurance provides basic protection, looks can be deceiving. 50% of American workers currently do not have access to short term disability insurance through their employer.

Therefore, more self-employed workers than ever before must protect themselves from economic peril.

The four needs of disability insurance for self-employed workers are: 1) protection from medical expenses, 2) protection from loss of income in the event of injury or illness, 3) protection from loss of future income, and 4) the ability to purchase coverage at an affordable cost.

A disability insurance plan for the self-employed must address all four of these needs.

Number one, like Social Security, the American Disability Association (ADA) requires a mechanism that helps meet the large and unexpected medical expenses of disability.

Number two, the American Disability Association considers an emergency reserve disability income policy a minimum requirement. Both employee-sponsored disability insurance and self-directed disability insurance meet this need; the coverage can be extended past one year as well.

Number three, many self-employed workers are their business’s only employee. They need protection from loss of income during unemployment while they heal. A policy that offers disability income life insurance allows the self-employed worker to have insurance enough to support themselves, their family, and business during this period.

Long Term Disability Insurance Policy

One of the biggest reasons to own your own business is that it opens many doors to making money online that would have been closed to you working for someone else. That can also be one of the biggest risks in owning your own business, since you are much more susceptible to business interruptions than if you’re a salaried employee.

Many people may have heard of long term disability insurance, but they might not know that the benefits are.

Tax Deductible

And offered by certain types of business owners. An individual can (usually) purchase a long term disability policy for themselves to cover themselves or their family if they’re unable to work through no fault of their own for an extended period of time.

You are eligible for disability benefits if you or your spouse has a chronic illness or injury that prevents you from working for at least 90 days. You can read more about the details of individual long term disability policies at the Disability Benefits Plan website.

If you’re a business owner, you are eligible for long term disability benefits through a self employment disability insurance policy. This coverage is not typically included with your group health insurance, so you will need to purchase it separately. The benefits of becoming self employed and obtaining a disability insurance policy are many, including:

  • Tax deductibility of premiums
  • Guaranteed issue of policy
  • No medical exam required
  • Liberal definition of disability

Coverage Amounts

Individual Disability policies cover sickness or injury only. If you are self-employed, your business income is your only source of living. Without a source of income, your future is severely jeopardized. Make sure you have enough coverage to protect your business and yourself.

Also, many disability insurance companies do not pay benefits unless the individual has earned a specific amount of income in the previous 3 to 12 months. This amount varies depending on the company and the plan selected. Be sure to look into these factors when you are talking with an advisor about disability insurance.

Criteria for Selecting

If you are self-employed, it is imperative to have disability insurance …and not just to keep your business afloat in the event of a disability, but also to keep yourself financially afloat. Disability insurance can provide a source of income if you are unable to work due to a medical condition. In fact, the Social Security Administration (SSA) considers long-term disability insurance the only form of "real" disability insurance that is available to people who are self-employed.

Disability insurance can provide you with a portion of your income if you are unable to work. It often replaces a percentage of income (such as 60% or 70%), but can also replace a set dollar amount. There are several types of disability policies available, and the style you choose should depend on your specific needs.

Long-term disability (LTD) policies typically stop when you reach retirement age, so if you are in your 40s and 50s, you're probably looking at earning a fixed income for the rest of your life. You may need an insurance policy that provides lifetime coverage. You can also purchase a disability policy to cover you for a fixed amount of time (often two to three years).


You're self-employed, and you need disability insurance, but not just any policy will do. Make an educated decision about what kind of policy makes the most sense for your business. You've built your company from the ground up, and you know what kind of risks it faces.

Why should you settle for just any disability insurance policy when you can get one that specifically protects a business owner? Most businesses don't have the resources to live month to month dependent on the ups and downs of income. When you're disabled, you can't earn an income, so it's vital to have a disability insurance policy to help provide a source of cash flow until you can get back on your feet or until you find a new job.

There are four considerations to make when shopping for a policy – the coverage, the company, the price, and how well the policy fits your unique business.

The coverage: Disability insurance is a hugely flexible field. You need to select a disability policy that covers what your business needs. For instance, a less-experienced business owner is going to need more coverage than someone whose business has been thriving for decades. Make sure you are getting enough coverage to meet your goals.