Disability insurance for the self-employed replaces your lost income if an injury or illness prevents you from working. Because you do not have employer-sponsored benefits like paid sick leave, you must buy an individual policy. These plans usually cover 60% to 80% of your net income and cost 1% to 4% of your annual earnings.
Individual Long-Term Disability (LTD): Replaces a portion of your personal income if a disability lasts for months or years. It typically kicks in after a 30- to 90-day waiting period.
Business Overhead Expense (BOE): Reimburses you for fixed business costs (such as rent, utilities, and non-owner employee salaries) while you are disabled.
Short-Term Disability (STD): Covers temporary setbacks (like recovering from surgery or a broken bone) but can be challenging and expensive to acquire as an individual.
“Own-Occupation” Rider: This is the most crucial feature for self-employed professionals. It ensures you receive benefits if you cannot work in your specific field, even if you are capable of working a different job.
Income Verification: Underwriters will typically require 2 years of tax returns to prove your net income and prevent over-insurance.
Tax Rules: If you pay for an individual disability policy yourself, the premiums are typically not tax-deductible, but your monthly disability benefits will be tax-free.
Social Security Disability Insurance (SSDI): Self-employed workers can qualify for federal disability through the Social Security Administration. You must have paid self-employment taxes (SECA), have a severe disability expected to last over a year, and meet the strict Substantial Gainful Activity (SGA) earnings limits.
The right coverage depends on your profession, your income, and whether you have employees relying on your business staying afloat. Let’s talk through what fits.
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