Self-employed individuals lack employer-provided sick or disability benefits, making personal disability insurance important. Key options include individual long-term disability, short-term disability, and business overhead expense insurance. When comparing policies, focus on the definition of disability (own-occupation vs any-occupation), elimination period, benefit period, benefit amount, riders like partial/residual and COLA, and contract guarantees. Work with a broker experienced with self-employed clients, verify underwriting requirements, and consider SSDI as a possible additional source of support.
Why self-employed workers need disability insurance
If you run your own business or freelance, you don't have paid sick leave or employer disability benefits to fall back on. A long-term illness or injury can quickly cut off your income and threaten your home, business, and savings. That makes disability insurance one of the most important personal-protection products for the self-employed.
Types of coverage to consider
- Individual long-term disability (LTD): Replaces a portion of your earned income for months or years while you recover. Most individual LTD policies replace roughly 50-70% of pre-tax earnings.
- Short-term disability (STD): Pays benefits during the initial weeks after a disabling event; elimination periods are shorter than LTD.
- Business overhead expense (BOE) insurance: Pays ongoing business expenses (rent, utilities, employee payroll) if you're unable to work. It is different from personal disability coverage.
- Definition of disability: "Own-occupation" policies pay benefits when you can't perform your specific job. "Any-occupation" is stricter and may deny benefits if you can do other work.
- Elimination (waiting) period: Common LTD waiting periods are 30, 60, 90, or 180 days. Shorter waiting periods mean faster benefits but higher premiums.
- Benefit period: How long benefits last - a few years, to age 65, or a fixed term.
- Benefit amount: Policies generally cap benefits as a percentage of income and may limit the maximum monthly benefit.
- Riders: Look for partial/residual disability, cost-of-living adjustments (COLA), and guaranteed insurability options.
- Contract guarantees: Non-cancelable and guaranteed renewable policies give more protection against future premium increases (subject to insurer terms).
- Estimate your financial exposure: Calculate living costs and business fixed expenses to determine the benefit amount and whether you need BOE coverage in addition to personal LTD.
- Work with a broker experienced in disability products for the self-employed. They can compare carriers and help you evaluate definitions and riders.
- Compare elimination periods, benefit periods, and whether the policy is own-occupation.
- Review medical underwriting requirements - expect health questions and possibly an exam.
- Social Security Disability Insurance (SSDI) is available to self-employed people who meet work-credit and medical criteria, but the approval process can be lengthy and benefits may be limited.
You can and usually should buy disability insurance if you rely on your own labor for income. Prioritize an own-occupation definition and the right elimination and benefit periods for your cash reserves. Use a specialized broker to compare contracts and riders before you buy.