Disability Insurance for the Self-Employed

Venturing into the world of self-employment brings its share of challenges, but securing your financial future in the face of uncertainty doesn’t have to be one of them—our guide on Disability Insurance for the Self-Employed offers empowering insights to safeguard your income, ensuring you remain resilient no matter what life throws your way.

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Being self-employed brings a great deal of freedom, but also more work responsibilities. One example is providing disability insurance. It’s vital for small business owners, independent contractors, and freelancers for several reasons. Injury or illness can occur in any line of work and, as the person in charge of your income stream, you don’t want to lose money if you get hurt or sick. 

Disability insurance is also important for business owners, consultants, and other project-based workers because the benefits can keep your business afloat while you recover. The primary goals of obtaining disability insurance as a self-employed worker are to ensure that your company’s life is not overly affected if you have a health concern, and guarantee yourself some income while you recuperate. 

How Disability Insurance Works for the Self-Employed

Short-term disability insurance and long-term disability insurance are available to independent entrepreneurs, but they may not come with the same level of coverage or affordability when purchased outside of a group. While self-employed individuals can still apply for the standard short-term disability insurance (STD), it’s much harder to obtain this kind of coverage as an individual. 

Small business owners should also consider investigating the merits of individual income disability insurance and business overhead expense insurance. The first is an individual contract between yourself and a chosen insurance entity and is designed to offer personal income protection if you fall ill. The second is designed to support your ongoing overhead business expenses in times of illness when your business income drops.

The insurance application will look similar to how it does for employees at larger companies and with the same considerations: definition of disability, benefit period, elimination period, and special concerns. However, many insurance companies will ask to see evidential proof that you have been self-employed for at least two years and may require the submission of tax forms to verify this. Each insurance company has different qualification requirements, so it’s important to do your homework on what eligibility looks like before seeking a disability insurance quote.

Short-Term Disability Insurance

Short-term disability insurance is designed to cover temporary, less serious illnesses and injuries that people are expected to recover. This type of disability coverage might be used for events ranging from surgery to viral infections. Below is a closer look at some of the key elements of short-term disability insurance:

  • Definition of disability: The definition of disability is how your contract defines your inability to work. If you opt for an “own occupation” definition, that means you’ll qualify for benefits only when you couldn’t work in your specific field. If you elect an “any occupation” definition, you’ll receive benefits if you can’t do any work, including part-time or out-of-field engagements.
  • Premium: The premium refers to the dollar amount you pay for disability coverage.
  • Benefit: The benefit refers to the monthly benefit (a dollar amount) you’ll receive if you have to claim. This will typically be a payout figure between 40% and 60% of your weekly gross income.
  • Benefit period: This time frame refers to how long you will continue to receive your established benefit. Benefit periods can range between months and years, depending on the unique tenets of your disability policy.
  • Waiting period/elimination period: The waiting or “elimination” period is the gap of time you can expect to wait between the declaration of your disability to when you start drawing benefits from your policy.
  • Additional riders and benefits: Although more common in long-term disability policies, the additional riders and benefits section allows you to customize your document to fit your specialized needs. Examples of additional riders and benefits might include increasing coverage for the cost of living or increasing coverage without further underwriting. 

Long-Term Disability Insurance

Long-term disability is available to protect your income if you are critically ill, permanently disabled, or injured in a way that it’s likely to require years of recovery. You might consider opting for long-term disability if your field is hazardous or if you have ongoing health issues of any serious nature. A long-term disability insurance policy contains the same considerations concerning short-term disability:

  • Definition of disability: Again, the specifics on what qualifies as disability will vary from provider to provider. Ensure that you choose one that meshes well with your health, industry, and company’s needs.
  • Premium: Measuring how much you pay for coverage against how likely it is that you’ll use it is wise with long-term disability. 
  • Benefit: Evaluate benefits associated with long-term disability against your total monthly expenditures and whether there is flexibility regarding the cost of living or other shifts in your financial status that may occur due to medical costs.
  • Benefit period: Some long-term contracts are drawn up for a select period of time, and others are written to cover expenses through retirement.
  • Waiting period: With long-term illnesses or diseases often requiring continuous treatment schedules, it’s important to note the waiting period on any long-term policy you may choose to buy. 

How to Determine Disability Insurance Coverage Amount

Disability insurance typically only covers a portion of your income, so you’ll want to do a little math before shopping for a policy. Consider the following steps when calculating your disability insurance coverage needs:

1. Total your current monthly living expenses

Think of everything that goes into your monthly household budget. Having a holistic picture will help you draw up the additional riders and special provisions of your disability insurance policy to serve your needs best.

Household expenses to calculate:

  • Housing: Remember to include taxes and insurance.
  • Utilities: Everything from electricity to storage space counts.
  • Food: Don’t forget school lunches, snacks, or other smaller food expenses outside of grocery runs.
  • Child care: Include formal day care and any babysitting costs.
  • Loan payments: Don’t leave out your existing debts.
  • College savings or tuition: Any money set aside for future goals should also be included.
  • Retirement savings: Whether done through a planned savings account like an individual retirement account (IRA) or by your own discipline each month, retirement savings should be factored in.
  • Auto expenses: Remember to include expenses for any outstanding payments, tag taxes, insurance, and fuel. 
  • Other regular expenses: Always place a catch-all area to figure in any uncategorized spending routine for your household.

2. Calculate your total monthly business expenses

Be just as precise when you start tallying up your company’s monthly expenditures. Business expenses to calculate include:

  • Rent or mortgage: Even if you own the work building, place a figure here that encapsulates your costs associated with maintaining it. Do you have a cleaning crew or landscape service helping you keep things professional? Don’t forget those expenses.
  • Utilities: This covers everything from water usage to materials.
  • Insurance: Make sure you include premiums and any deductibles.
  • Salaries, benefits, and other compensation: Keep in mind any special bonuses or awards that may impact your bottom line here.
  • Taxes: Any state, federal, or other taxation will matter in the drawing up of your policy.
  • Loan payments: Whatever you still owe after launching your startup should be indicated.
  • Miscellaneous: Every company has small expenses. Ensure you don’t leave anything out, as these can add up.

3. Determine the coverage amount

Once you have a final figure that incorporates your total financial needs per month, you can more accurately assess what kind of coverage you need to feel secure. Some policies will only pay a percentage of your personal expenses but pay 100% of your business expenses. Evaluate which policies you want by adjusting your needs against any major savings or liquid assets you may have. 

Self-Employment Disability Insurance Cost

Determining coverage leads to determining cost. The cost of disability insurance can vary. It’s also important to realize that, as a self-employed worker, you’re purchasing individual disability insurance, and this cost generally can’t be counted as a tax liability for your business. Several important factors will go into your disability insurance cost. 

Business Type or Industry

The type of work you do will play a part in the price you pay for disability coverage. If you’re a carpenter or stonemason with a small business, your coverage cost is likely to be higher than for your friend who works in graphic design. This is because there’s an inherent risk associated with construction-type jobs or any position that calls for daily interaction with power tools. Your disability insurance provider will determine the inherent risk associated with your job by looking at data stemming from recent claims in that field.


Money also matters in estimations of policy cost. Generally speaking, the cost for a disability insurance policy for the self-employed will run between 1% and 3% of the worker’s annual income. Be prepared to show tax returns or other formal financial documentation. Your policy will be underwritten, much like any mortgage or auto loan, and how much you earn will be used to establish your policy cost.


Disability insurance providers will charge more for older policyholders because older individuals are more likely to file a disability claim.


Your current health will play a role in the insurance company’s calculation regarding a policy centered around the loss of health. If you have documented medical conditions that may lead to a greater likelihood of a claim, you’ll pay a higher premium. This is true for those with chronic illnesses, such as diabetes, or unhealthy habits, such as smoking.

Applying for Self-Employment Disability Insurance

Once you’ve done some research on disability insurance providers and calculated your net coverage need, it’s time to start applying. Every insurance provider handles the application process differently, although digital processing makes turnaround times much faster. 

Note that if you’re new to having your own business, you might want to wait a bit before beginning the application process. Most companies will require you to show that you have been in business for at least two years before taking you on. 

Once you start the application process, you may be offered several policies:

Non-Cancellable and Guaranteed Renewable Policies

The most encompassing disability insurance policy is non-cancellable and guaranteed renewable. This is also the most common. Non-cancellable means what it sounds like: Your provider can’t change your policy unless you request it or fail to meet your premium obligations. This means that once your policy is written and signed, as long as you pay your bill reliably, the policy will only ever change if you wish it to. 

Guaranteed Renewable Policies

With a guaranteed renewable policy, your insurer can change your policy provisions, lower your benefit amounts, or raise your premiums. However, insurers can only do that with approval to do so for the entire rate class as provided by the insurance department for your state. For these reasons, a guaranteed renewable policy is slightly less static than its non-cancellable and guaranteed counterpart.

Conditionally Renewable Policies

Most changeable of all disability insurance policies are those deemed conditionally renewable. An insurer can change this type of disability insurance plan’s benefits, rates, or provisions at will. This means that the policy you sign for today could look very different down the road, and there’s no way to control coverage or costs associated with it.

Protect yourself with self-employment disability insurance

Being your own boss means having to think of and plan for everything, including your own absence. Disability insurance for the self-employed or sole proprietor is doubly important because smaller companies have fewer backup personnel should someone get sick. Buying a personal disability insurance policy allows your company (or you) to carry on financially if a health disaster strikes. 

While it’s hard to plan for the unknown, it’s easy to get help planning aspects of your business under your immediate control. ZenBusiness can assist you in everything from customizable business plan templates to state tax or compliance issues. Let ZenBusiness help you get your company’s paperwork in perfect order so that when it comes time to present your documents to a potential disability insurer, you’ll be more than ready.

Self-Employment Disability Insurance FAQs

  • Yes, self-employed workers are encouraged to seek individual disability insurance that aligns with their particular needs (short or long term).

  • There is a strong argument to be made that self-employed workers need disability insurance even more than employees, as the self-employed are generally responsible for more of their company’s well-being. Being out sick as the owner of a small business is more immediately impactful than being away from a job with a large corporation.

  • Any self-employed person who has paid self-employment taxes (SECA) for a number of years will be eligible to receive disability benefits from the Social Security Administration.

  • The best policy for any self-employed worker is a personal choice. What works for one often doesn’t apply to another. It’s wise to research various insurers after tallying your coverage needs so that you can have an adequate idea of which provider may best serve you. It’s also advisable to compare your coverage needs with those of other workers in your industry to make sure that you’re getting what’s best for your business.

Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

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Written by Team ZenBusiness

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