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Disability insurance for the self-employed

Stay afloat financially with the help of a short-term or long-term disability insurance policy.

Last updated:

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.

Can I get disability insurance if I’m self-employed?

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.

How much coverage do I need?

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:

  • Your monthly salary
  • The minimum amount you’ll need to pay your bills
  • How much your dependents require
  • How much you may need to keep your business afloat

By crunching these numbers, you’ll know the bare minimum of money you’ll need to replace if you become disabled.

Compare disability insurance for entrepreneurs

Updated April 9th, 2020
Name Product Waiting period Benefit period
Policygenius Disability Insurance
60 - 365 days
2, 5, or 10 years or until age 65 or 67
Get matched with one of 15 top life insurance companies to find the best coverage and rates for you.
Breeze
30 - 365 days
1, 2, 5, or 10 years or until age 65 or 67
This startup offers some of the most riders and benefits backed by an established underwriter.
LeverageRx
30 - 365 days
1, 2, 5, or 10 years or until age 65 or 67
LeverageRx is a digital lending and insurance marketplace exclusively for medical professionals.
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Compare up to 4 providers

Short-term disability insurance for the self-employed

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 insurance for the self-employed

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.

How much does disability insurance cost for self-employed indivudals?

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:

  • Age. The younger you are, the lower premiums you’ll pay. This is because the younger you are, the less likely you are to become disabled due to an injury or illness.
  • Occupation. High-risk occupations that have a greater chance of causing injury are priced much higher than low-risk occupations.
  • Gender. Men generally pay higher premiums than women, in part because they tend to work in riskier professions.
  • Health. If you’re in poor health, you’ll pay higher premiums than someone without health issues.
  • Policy type. The length of the benefit period, benefit percentage and elimination period you choose highly affects your rate.

Is disability insurance tax-deductible if I’m self-employed?

Whether or not your disability insurance is tax-deductible depends on the type of legal business structure you have.

  • Sole proprietor. You cannot deduct disability insurance premiums if you are a sole proprietor. However, the benefit money from the policy is taxed.
  • LLC. You can deduct disability insurance premiums from your taxes as an LLC. Doing so might pass the taxes on as income tax to the employee or shareholder who collects the benefit.
  • S-corporation. S-corps can deduct the premiums from their taxes on employees or shareholders who own more than 2% of the business.
  • C-corporation. C-corps can only deduct the premiums on employees that it pays the premiums for. If the deduction is included in the employee’s income, then the benefit amount will be tax-free.

Bottom line

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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