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Getting disability insurance is crucial if you're self-employed, so here's what you need to know before you take out a plan. Fortunately, it's easy than ever to get a policy online.

If you’re healthy, it can be hard to imagine a scenario where you get sick or otherwise find yourself unable to work. However, nothing in life is certain and there’s always a chance that something could happen that could leave you unable to work.

Disability insurance offers protection against this possibility, making sure you still have enough money to live if you’re disabled and cannot work.

Many companies offer disability insurance as a benefit that employees receive for free or can purchase at a discount. However, self-employed people don’t have the luxury of getting insurance through their employer. That makes them responsible for their own insurance coverage.


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What is Disability Insurance?

Disability insurance is a type of insurance policy that covers you against the possibility that you may become disabled and unable to work.

Imagine that you own a shipping company and your job involves a lot of heavy lifting and moving of equipment. You hurt your back and have to go to the hospital, then spend months at home recovering and letting your back heal. There’s no way that you can go back to your job right away, so how will you make money to pay for your expenses?

There are some government programs, like Social Security Disability Insurance, but private insurance generally offers higher payouts that can be easier to live on.

If you have disability insurance, your policy will cover you, paying you a portion of or all of your previous salary while you’re unable to work.

It’s important to note that disability insurance isn’t just intended to cover you for permanent disabilities, though it can do that. It can also help you if you wind up sick for a few months but can later return to normal work.

How Does Disability Insurance Work?

To get started with disability insurance, you have to shop around for a policy. There are a few key things that you’ll want to compare for each of the policies that you look at.

  • The premium. Like any insurance policy, you’ll have to pay a monthly cost, called a premium, to keep your coverage.
  • The definition of disability. This might be the most important thing to look at. Some policies define disability incredibly strictly, only paying out if you’re totally unable to work. Others are more flexible, offering payments if you’re too injured to work at your regular job but could find a new job that pays less.
  • Benefit amount. Most disability insurance policies base their payouts on a percentage of your income prior to your disability.
  • How long payments last. Disability insurance won’t pay you indefinitely. Many policies only pay for a set number of months or years or will stop paying you after you reach a certain age.

Once you choose a policy, you’ll probably have to go through a medical examination and some other preliminary steps before you can finalize your policy. Disability insurance is largely based on the risk that you’ll become disabled, so insurers want to make sure that you’re healthy and have a clean medical history before insuring you.

Typically, policies are cheaper for young, healthy people with no significant medical history. They get more expensive as you age and if you have risk factors like a history of disease, tobacco use, or dangerous employment.

After that, all you have to do is make your monthly premium payments. One benefit of finding insurance on your own is that as long as you pay your premium, you’re covered. If you got insurance through an employer, you could lose coverage by losing your job or if your company decides not to renew the plan.

Ideally, you’ll never have to file a disability claim. However, sometimes things happen and you get hurt and need to file a claim.

To file a claim, you’ll have to fill out and submit a claim packet, which includes a variety of information about your claim. Usually, you’ll include a statement about your disability, how it impacts your work and how it impacts your income.

You also have to include a statement from your doctor, outlining the extent of your medical disability, relevant medical history, the treatment you’ve received, and the doctor’s estimated timeline for if and when you’ll be able to return to work and to what extent.

If your claim is approved, you can start receiving payments. Most long-term disability plans have a three-month waiting period. After that, you’ll start receiving insurance payments.

Why is Disability Insurance Important?

Disability insurance is incredibly important because it provides a source of income for people who don’t have a way to work, or who cannot work at a job that provides the level of income they’re used to.

Consider this example:

Jane owns a landscaping business. She works hard and earns about $75,000 per year. One day, while working, she hurts her leg and has to go to the hospital. The doctor tells her that she needs to stay off her leg for at least the next year to let it heal, which means there’s no way that she can work at her landscaping company.

If Jane applies for Social Security Disability Insurance (SSDI), the government may approve her claim and offer some support. In 2020, the average benefit is $1,258, so Jane will receive roughly $15,096 over the course of the year, almost $60,000 less than she would make from working.

That’s a huge drop in income. Unless Jane has a lot of money in an emergency fund, she’ll probably have trouble paying her bills, making rent, or buying groceries.

If Jane purchased disability insurance that replaces 70% of her pre-disability income, she’d instead receive $4,375 per month, totaling $52,500 per year. As a bonus, disability insurance payments are typically tax-free, so her effective reduction in income will be very small, making it much easier for her to pay her bills and other living expenses.

Why is Disability Insurance Important For the Self-Employed?

Disability insurance is particularly important for the self-employed for a few reasons.

One is that you won’t be getting any coverage through your employer. Many companies offer basic disability insurance plans as a standard benefit or as a benefit that employees can easily purchase. The self-employed have to go out and purchase it on their own.

Another is that self-employed people typically do a lot for their business and if they’re disabled, the business will take a major hit. If you work for an employer and get injured, the company may be able to re-employ you in another role or hold your position until you get better.

If you’re self-employed, you won’t have the option of finding a new role in your company to keep earning money. There’s also a good chance that your company will start losing customers because you can’t perform to the same standards that you did before. This means you’ll have to start from a worse position even after you return to full health.

Having the payments from disability insurance to cover your expenses, letting you save your emergency fund to hire help for your businesses, or to invest in your company when you get better can help you reduce your business’s potential losses.

Breeze Disability Insurance

One of the best disability insurance providers for self-employed people is Breeze.

Breeze is a fully online disability insurance company, making it easy to apply for a policy, no matter where you’re located. Getting a quote takes just a couple of minutes and you’ll receive multiple options that let you customize your monthly benefit and premiums. You can even choose a plan that doesn’t require a medical exam if you want to avoid that requirement.

Policies come with a number of optional features, including:

  • Automatic benefit increase
  • Own-occupation rider
  • Guaranteed insurability
  • Partial disability benefits
  • Catastrophic disability benefits

If you’re a self-employed person looking for affordable long-term disability insurance, Breeze has a number of plans that may work for you.

Read our full Breeze Review

Bottom Line

Disability insurance is important for any person to have, but even more so for self-employed people who are wholly dependent on running their businesses. Even a small injury could cause major setbacks. These days, getting a disability insurance plan is easier than ever so it makes sense to explore the options and have peace of mind.

Author Bio

Total Articles: 13
TJ is a Boston-based freelance writer who specializes in credit, credit cards and bank accounts. In his spare time, he enjoys reading, writing, cooking, playing games (of the video and board varieties), soccer, and ultimate frisbee. You can find his work on his website, tjporterwriting.com.

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