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Statistics show that one in four Americans will become temporarily disabled at some point in their careers and will have to take time off work. While many businesses offer disability policies to their employees, self-employed individuals don’t have that luxury. However, you can still purchase an individual disability insurance policy.
Yes — but some companies may require you to prove you’ve earned sufficient income for two years before you can buy a disability policy.
If you are thinking about starting your own business but still have a regular job, you can purchase a policy before making the jump to self-employment.
The simple answer is: As much coverage as you can afford. It’s important to note that disability policies rarely offer 100% income replacement. The typical range is between 40% to 80%, with the amount depending on the type of policy you choose.
To figure out the dollar amount, consider these factors:
By crunching these numbers, you’ll know the bare minimum of money you’ll need to replace if you become disabled.
Short-term disability is meant to replace a percentage of your income if you can’t for a brief time due to an illness or injury. It usually lasts two to six weeks, and sometimes up to one year. You can customize your coverage to fit your needs, including the percentage of income replaced, the length of coverage time and the elimination period.
Short-term disability plans typically replace 40% to 80% of your income. There are also waiting period options ranging from seven to 90 days after an injury or sickness before you start collecting on your policy.
Long-term disability is designed to cover injuries or illnesses that result in being unable to work for over 180 days. The typical benefit period you’re allowed to collect money for is between two to 10 years, and some companies offer a plan that can pay until you reach retirement age.
Long-term disability plans typically cover between 50% to 80% of your income during the benefit period. Just like with a short-term plan, you’ll have your choice of elimination periods, length of coverage time and the percentage of income replaced. The waiting period options can range from 30 days to a year, and sometimes longer.
A general rule of thumb is that disability insurance policies cost between 1% to 3% of your annual income. However, premiums for disability insurance vary based on many factors, including:
Whether or not your disability insurance is tax-deductible depends on the type of legal business structure you have.
Having disability insurance can be the difference between saving your business and being forced to close if you become ill or injured for an extended period of time. Disability policies provide the income you need to keep your business afloat or maintain your lifestyle.
Before purchasing a policy, it’s important to compare disability insurance companies, policy features and premiums.
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