Question: Can I get disability insurance if I’m self-employed, and if so, should I?
Answer: Yes, and if you’re self-employed, disability insurance is even more important for you than for the average employee. If you are injured and are unable to work, you don’t have the built-in luxury of paid sick leave to tide you over.
This means you need to take a serious look at your financial situation and decide whether you have enough in cash reserves to support you in the event of an extended disability. If not, you should pursue disability insurance.
When you’re unable to work for an extended period of time because of an injury or illness, disability insurance provides a financial safety net by paying you monthly benefits until you are able to return to work. Since your business is likely your only source of income, your disability insurance policy should have a waiting period no longer than your ability to cover expenses from your emergency reserve. Most disability policies offer waiting periods of 30 to 180 days after the onset of the disability. When applying for the insurance, you can choose a policy with the waiting period and benefit period you want. Keep in mind, however, that your premium will increase as the waiting period gets shorter and the benefit period gets longer.
Being self-employed, you’ll have to purchase this insurance on your own. The availability of coverage will depend on factors such as your occupation, whether you work from home, travel, and whether you have any risky hobbies (e.g., motorcycle racing).
Sometimes, professional or trade associations will offer their members disability plans. While it may appear to be group coverage since it is sponsored by a group, such policies are issued to the individual. This means you are not automatically covered and must prove insurability. However, insurability guidelines are often relaxed when it comes to many of these association type plans. Therefore, you may qualify more easily than if you tried to apply for a direct individual policy.
The initial cost of an association-sponsored policy is typically less than an individual policy; but, after a certain period of time — usually anywhere from 5 to 10 years — the premium may increase to a level that exceeds the cost of an individual policy. You should also be aware that the policy can be canceled if you leave the group, if the insurance company cancels the group contract, or if the association withdraws its endorsement. This could leave you in a vulnerable position without disability protection.
If you belong to a trade, chamber or professional association, check with their membership services group to see what they offer. You may want to consider joining a group if the benefits are worthwhile. Of course, you should always discuss your coverage options with your advisor or insurance agent.