How To Get Disability Insurance for Self Employed People

Whether you’re a freelancer, independent contractor, or run a business, it can be challenging to take time off while being self-employed. Having the freedom to choose your own schedule is wonderful but comes at a price. Many don’t get the luxuries of salary employees such as paid time off. As a freelancer, if you don’t work, you don’t get paid. That’s why having disability insurance for self-employed people is incredibly important.

Imagine if you received a serious illness or injury and you couldn't work for months? Would you and your family survive without your income? For most, the answer is no. On average, about 30% of individuals between 35-65 will suffer a disability of 90 days or longer preventing them from work. That’s about one in four adults who will become too injured to work for a period during their life.

This article will give you all the information you need to:

Am I Eligible for Disability Insurance?

The best way to get a high-quality plan with relatively cheap payments is to take care of your health the best you can. If you have a prior condition, you, unfortunately, may not qualify for as many plans. When you apply for disability insurance, most companies will usually require you to take a medical exam to verify your health. In addition, you also usually have to prove that you’ve been earning income as a self-employed individual for the last two years.

If you are in a job and planning to make the leap into being self-employed, get a disability insurance plan before you quit your job to get the best deal. A non-cancelable, guaranteed renewable plan will follow you even after you leave your career. Meaning they won’t cancel the plan on you or raise your rates if something in your life changes. We will go over more of these plans later.

Terms You Need to Know for Self Employment Disability Insurance

Before we dive into how to choose a plan, we must discuss all the terms and their definitions.

Your potential insurance plan is defined also by the following:

  • Premium - The price you pay for insurance.
  • Benefit - The amount you get each month if you are injured. This number is usually between 60% to 80% of your monthly salary. As a bonus, this amount is not taxed.
  • Benefit period - The time frame you will receive a benefit or income when unable to work. Short term disability insurance is temporary supplemental income protection for 6 months or less. A Long term disability insurance policy can last for either a few years or up to the rest of your life, depending on the policy.
  • Waiting period - The amount of time after you are disabled until you start receiving your monthly benefits. This is also known as an elimination period. These time periods are usually in segments of 1 month or up to a year, with an average of 90 days.
  • Definition of disability - The policy's definition of being disabled and eligible to receive your disability income payments. Your disability can be labeled as an own-occupation, which means when you can’t work in your specialty or career. It can also be defined as any occupation, in other words, you only qualify for benefits if you can’t do any work at all. Be careful with plans like this. If you are an independent contractor for construction and you get injured, then any-occupation disability plans won’t pay you if you’re still technically able to work at another job such as McDonald’s.
  • Residual or partial benefit riders - If your disability only lets you work part-time hours, then you can still get disability insurance income checks to cover the rest of your normal income with this type of plan.

Personal vs Business Disability Benefits

Personal plans will only cover your personal income and expenses. This is common for freelancers or independent contractors who don’t have that much business overhead. For many business owners or freelancers with employees, this is not enough because they need income to cover the expenses of their business as well. In that case, they will choose a plan for both their personal income and business expenses.

Once you decide the type of coverage you need, we can go over how to calculate the benefit amount you require.

Estimating the Disability Insurance Coverage You Need

The best insurance plans will cover the coverage you need to keep your premiums low. To calculate your necessary coverage, you have to take into account your personal and/or business expenses.

Major personal expenses usually include:

  • Rent or mortgage
  • Utilities
  • Food
  • Childcare
  • Credit card or loan payments
  • Retirement savings
  • Car expenses, insurance, and gas
  • Health care

After calculating your personal expenses, make sure to consider your business expenses.

Standard business expenses:

Once you have a solid estimate of all your expenses, then we can begin shopping for a plan.

How Much Should I Expect to Pay?

How much you pay for a disability insurance premium depends heavily on your income level, the percentage you want to cover, your expenses, health, and lastly your age.

As a rule of thumb, you will usually pay between 1%-3% of your annual income for the proper policy you need.

A policy with a smaller compensation plan, longer waiting period, and shorter benefit term will usually be cheaper. Plans with a larger benefits package, shorter elimination term, and longer benefit period will have cost a bit more.  

If you have an emergency fund, then you can afford to have a longer elimination term (waiting time) until you receive your first benefit income check. For example, if you have a 3 month long emergency fund then you can have a lower monthly payment by getting a 90 day waiting period. A shorter 30 day waiting period will be more expensive because you get your benefits sooner.

Now that you have a basic idea on how much your premium will be, let’s go over how to choose a plan.

Choosing the Best Disability Insurance Plan

The 4 step processing to choosing a plan:

1. Understand the Types of Disability Insurance

2. Compare your options

3. Apply

4. Plan placement

Understanding the Types of Disability Insurance

When you are starting a new plan you will usually get asked questions from insurers about your past income history, this is called financial underwriting. If you are a new self-employed individual you may not know what your income will be.

If you are just starting out, the financial underwriting will not be needed if you choose a starting practice limits plan for new business owners. This is a special plan that doesn't require an income history as a business.

Additionally, make sure to choose a plan that will give you a cost-of-living adjustment to account for inflation. This means your disability payouts will grow with the rising cost of living due to inflation.

Another type to look for is a non-cancelable and guaranteed renewable plan. This means that no matter what, if you pay your insurance bill, the company can’t raise your rates, change your benefits, or revise policy provisions such as the cost-of-living adjustment.

Plans that are only guaranteed renewable are also known as conditionally renewable plans. These policies make themselves seem cheaper in the beginning however they are subject to policy changes that could lower your income payments, raise premiums, or adjust the policy provisions even after you get disabled. This puts you in a bad spot because you may not be able to easily change plans and you are at the mercy of your disability insurance company to pay you what they want.

Now that we are comfortable with the important details of disability insurance plans, it's time to evaluate our options.

Compare Plans

There is no perfect or best insurance plan. As mentioned before the best policy covers the exact amount you need.

Some of the top companies for disability insurance are:

  • Ameritas
  • Assurity Life Insurance
  • Berkshire/Guardian
  • Illinois Mutual
  • Mutual of Omaha
  • Ohio National
  • Principle
  • The Standard

Please note that these companies often change their plans all the time. Make sure to compare not only all the companies between each other but also all the individual plans they offer.

How to Apply for Long Term Disability Insurance?

Once you’ve found the company and plan that fits your needs the best, you can start your application with the company. Some insurers will require you to sign up in person or over the phone, but many can be done online.

In addition to a medical exam, a company will also usually request your tax return information before moving on to being approved.

Plan Placement

Once accepted, your agency will send you a confirmation through your email. The next step is to do a final verification to make sure you have the complete coverage you need to protect you and your family. Next, you will sign some final forms and then make your first monthly payment.

Additional Coverage: Social Security Disability Insurance (SSDI)

Along with private insurance plans, it's important to note that you may qualify for Social Security benefits even if you are not retired. If you are disabled indefinitely and can’t work, then you can apply for monthly income payments from the Social Security Administration (SSA) but only if you have the proper amount of work credits. This means that if you’ve paid enough over the course of your working life into self-employment taxes through your job or business, then you may be eligible to receive benefits earlier than the retirement age of 67. However, the process to get this benefit can be from five months to two years and only 39% of applicants get approved.

Key Takeaway

You may feel overwhelmed already by your daily hustle and bustle of being an independent contractor or small business owner. At the end of the day, it’s worth looking into a disability insurance plan simply for the peace of mind, knowing that you and your family will be taken care of whether or not you can work.

Christian Davis

Christian Davis


Christian is a copywriter from Portland, Oregon that specializes in financial writing. He published books, and loves to help independent contractors save money on their taxes.

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