Can I Get Disability Insurance If I’m Self-Employed?

If you’re self-employed, there’s a good chance your marketing, logistics, purchasing and accounting departments are all staffed by a single person – you. That means without you, the business grinds to a halt and so does your income. 

While forging your own path is perhaps the most rewarding aspect of self-employment, it can also keep you up all night. If it’s tough to miss a single day of work, what would happen if you couldn’t work for weeks or even years? While many companies offer their employees disability insurance through a benefits package, protecting your livelihood as a sole proprietor can feel like you’re alone on an island.   

Fortunately, you can rest easy. You can, and should, get disability insurance if you’re self-employed. As an entrepreneur, you have a few options.  

Personal disability insurance for self-employed people  

Whether you’re a business owner, sole proprietor, contractor or freelancer, you can easily purchase personal disability insurance. In fact, many people who receive the benefit through work purchase additional coverage.  

In addition to the typical forms, interview and medical exam, self-employed workers need to prove they’ve drawn an income from their business (income verification is a component of the application process). If you already launched your business and haven’t drawn an income, proving your income is a little more complicated but won't preclude you from getting coverage. If you are working, but plan to start your own company, you might want to purchase a policy before you make the leap – that way your income is easily verified.  

Something to Consider: If you are self-employed, you may need additional protection to sustain the business if you can’t work – especially if you have employees. Your personal disability insurance will cover your income but won’t cover losses incurred by the business.  

RELATED CONTENT: What Is Disability Insurance? Our disability insurance guide can help you learn more about disability insurance and how it can benefit your financial plan.  

Disability overhead insurance, for example, will cover expenses associated with running your business, such as salaries, equipment and contract obligations while you are absent. You can also purchase disability insurance that softens the financial duress that results from the injury or death of a key employee.   

Group disability insurance 

If you have a few employees, you can, as they say, kill two birds with one stone by offering group disability insurance.  

This provides disability benefits for you and your employees by pooling you together. Everyone buys into a set benefit amount, and as a result the process of obtaining the benefit tends to be smoother. Employees may not need to prove their income when filing a claim since they aren’t doing so through an individual policy, for example. As an added perk, you can offer your employees the option to convert a portion of their coverage into a personally owned policy if they leave.  

Short- and long-term disability insurance for self-employed people 

Whether you go with the personal or group option, disability insurance is further divided into two policy types.  

Short-Term Disability: As the name implies, a short-term disability policy covers a portion of your income temporarily – typically a few weeks to several months, usually until long-term disability coverage kicks in. 

Long-Term Disability Insurance: If your injury or illness lasts longer or is even permanent, long-term disability insurance will step in to replace your income. Typically, a long-term disability insurance policy won’t start paying benefits until after you have been disabled for 90 days or more (hence the need for short-term disability insurance). 

A long-term disability policy covers you for many years (per the policy) or all the way into retirement if you want it to.  

What’s the average cost of disability insurance?  

Because there are so many variables factored into a disability insurance policy’s price, there isn’t really an “average” cost per se. However, there are a few factors that will impact your premium:  

Beginning Date: This is how long you need to be out of work before your benefits begin. Some policies pay immediately while others don’t pay until you are out of work for a certain number of days. The sooner your benefits kick in, the higher the cost.  

Benefit Period: This is how long you can claim payments while you are unable to work. Longer benefit periods will cost more than policies with shorter periods.  

Benefit Amount: Some policies pay nearly up to 80 percent of your salary while others only pay a portion (the larger the benefit the higher the cost, of course). Employer plans typically cover between 40 to 60 percent of your income.  

Industry or Occupation: Jobs that require you to sit in an office will typically have lower short-term disability costs in comparison to a more hazardous job.  

Physical Health: Your age, sex (except in Montana) and health will also significantly influence your costs. In general, women tend to pay higher rates.  

How much coverage do you need? 

There’s no clear-cut answer because each person and business is unique – a medical practice and roofing company have very different business models and risk considerations. How big is the business? How many employees do you have? What’s the true cost to the business if you aren’t there?  

A financial professional can help put all the numbers together and assemble the right protections for you, the business and your employees.  

Getting disability insurance right is an important step for your business, because when all your bases are covered you can get back to overseeing marketing, accounting, public relations, product development, research, human resources, sales, ordering lunch, sweeping the floors... 

Are self-employed people eligible for Social Security disability? 

Self-employed people can be eligible for Social Security disability just the way employees of companies can be, assuming they pay Social Security taxes and meet other qualifications as set by the Social Security administration. The biggest difference is that employees typically pay their Social Security taxes through payroll deductions, while self-employed people must pay self-employment taxes (which includes Social Security and Medicare taxes) on their own when they file their quarterly estimated taxes or annual tax returns. 

To be used with form MN 992-STD, MN 992-LTD, MN 1096 SGSTD, MN 1096 SGLTD, ICC16.TT.DI.IIB.(0916), ICC16.TT.DI.FIB.(0916), ICC16.TT.DI.CAT.(0916), ICC16.TT.NCDI.(0916), ICC16.TT.GRDI.(0916), ICC16.TT.DI.PDB.(0916), ICC16.TT.DI.PDBO.(0916) or state equivalent. Not all contracts and optional benefits are available in all states. Disability insurance policies contain some features and benefits that may not be available in all states. The ability to perform the substantial and material duties of your occupation is only one of the factors that determine eligibility for disability benefits. These policies also contain exclusions, limitations and reduction-of-benefits provisions. Eligibility for disability income insurance, additional policy benefits, and qualification for benefits, is determined on a case-by-case basis. For costs and complete details of coverage, contact your Northwestern Mutual Financial Representative. Disability insurance policies contain exclusions and limitations that could affect individual coverage. For costs and more complete details, consult a Northwestern Mutual financial representative. 

Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) (life insurance, disability insurance, annuities, and life insurance with long-term care benefits)  

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