You’ve probably heard the saying that goes something like, “When you do what you love, you never have to work a day in your life.”
Well, that well-meaning sentiment might not be completely true—because freelancers, entrepreneurs, and the self-employed are some of the hardest working people out there.
But even if you do end up putting in more hours than you would in a traditional job, there’s something truly special about deviating from the path and choosing your own life adventure.
That’s a big part of why the number of Americans choosing freelance life is steadily increasing every year, and it was knocking on the door of 60 million at the end of 2020. They’re contributing more than $1.2 trillion to the national economy every year, but despite the lucrative income that many business owners are continuing to see, the unexpected is always lurking around the corner.
Our health and wellbeing have been thrown to the front of our minds thanks to the events of the past year. And, with one in three of us being unable to work at some point in our careers due to a wellness issue, it’s important to be prepared for anything. Global pandemics aside, considering how you’ll support yourself and your family should the unthinkable happen is one of the smartest moves you can make as a business owner.
That’s where long-term disability insurance can help. It may feel a little doom and gloom to be planning for a serious illness that could press “pause” on your budding career, but in reality, it’s peace of mind that can’t be found anywhere else.
We’re here to give you the rundown on what you need to know about long-term disability insurance, how it works, what’s covered (and what isn’t), and what happens if you need to make a claim. If it sounds overwhelming, we promise it’s not. We’re here to show you just how easy it can be to take some sizable business stress off your own plate.
Let’s get started with the basics. After all, you probably shouldn’t jump into taking out an insurance policy if you don’t understand what it is and why it’s important.
Disability insurance, otherwise known as disability income insurance (which is how we refer to it here at Asteya), is a financial safety net that helps to replace some of your income if you’re suddenly unable to work. For most policies, long-term disability is defined as an injury or illness that keeps you out of work for three months or longer, including permanent disabilities.
Depending on the fine print of your policy, long-term disability insurance will provide you with a direct payout that can go toward your basic needs, like medical bills or food and utilities. Essentially, it protects you and your dependents if you’re in a serious accident or find yourself dealing with an unexpected illness that leaves you unable to earn a living.
We can’t blame you if you’re wondering “how much does disability pay?” Money is a real-world concern. Is taking out a policy going to be enough to pay your essential bills and living costs?
The average insurance policy will cover between 60% and 80% of your after-tax income, which may not be enough to live on. So, while a long-term disability policy can significantly help to fill in the gaps when you have no other options, you should always be saving some extra cash to make up the rest.
Before you start shopping around for disability insurance, you should make sure that you have a simple understanding of the five key features that any policy will have:
1-Premium amount: The amount that you’ll pay to the insurance provider each month or year to maintain your policy.
2-Benefit amount: How much you’re paid out each month if you need to make a claim.
3-Benefit period: How long your long-term disability insurance will provide payments for.
4-Waiting period: The period of time you need to wait after an illness or injury occurs before your payouts begin.
5-Definition of disability: The types of conditions that your policy will or won’t cover.
While all of these aspects are important for different reasons, the first place to start when comparing policies is to look at what illnesses or injuries they cover.
What conditions are covered by a long-term disability policy?
Every insurance policy will be different, but the standard medical issues that are covered by most policies include cancer, pregnancy, mental health issues, injuries like fractures or strains, and musculoskeletal disorders that limit movement.
The Social Security Administration maintains its own list of covered conditions, but you should always check what your individual policy states as their definition of “disability” before committing.
We know it’s not fun to wade through all of that dense language (it’s enough to make you see double), but it’s important to know the specifics of your policy.
In most cases, insurance providers will not pay out premiums for illness or injury that stems from a certain condition that you already had before taking out the policy. These are known as “pre-existing conditions,” something you’ve probably heard before.
For instance, women often can’t be covered for pregnancy-related costs if they were already pregnant when they took out the policy. You may still be able to get a policy overall, it just won’t cover anything related to your little bundle of joy. That’s where something like short-term disability insurance may be more appropriate, or you can consider looking into long-term disability insurance before you start planning to expand your family.
How long is a long-term disability?
If you’re trying to decide between several policies, one of the most important questions you can ask is “how long does long-term disability last?”
Your coverage needs will vary depending on the type of illness or injury you could have (for example, surgery versus cancer that requires ongoing treatment), so try to find something that covers you for almost anything.
Unlike short-term disability policies, long-term disability can cover you anywhere from two years right up until you reach retirement age and Social Security benefits kick in. It all depends on how your policy is structured. Usually, the longer the benefit period, the more expensive your monthly or annual premiums are going to be.
When does your policy start?
Depending on how your policy is written, there may be certain criteria that you’ll need to fulfill in order to start your coverage. Most providers will have new applicants go through medical testing or require you to share your medical history via a doctor in order to determine how risky of an applicant you are. This process is known as medical underwriting and can take several weeks to complete. If your health history is complicated, this could take even longer, meaning you won’t be covered if something happens in the meantime.
But there are providers like Asteya that simplify this process so that you can be covered as soon as possible. There are no doctor appointments needed, period. And your policy details are determined based on a few answers that you submit in your application. Our “no exam” disability coverage will always give you faster approvals so you can have peace of mind in no time.
You should also be aware of your policy waiting, or elimination, period. This is the time you need to wait from when you become disabled or are unable to work until your benefit payments begin. This period can be anywhere from 30 to 365 days, so make sure you have a contingency plan to account for the time that you won’t be covered, like a short-term insurance policy or having a stash of savings in the bank.
How much will long-term disability cost?
What you pay each month or year for your policy depends on a number of factors, like your age, pre-existing health conditions, and the lifestyle you have.
If you’re working as a freelancer in a risky industry like construction, where injuries are more common, it’s very likely that your premium will be higher to account for the increased chance of you claiming against your policy. On the whole, you should expect to spend anywhere between 1% and 6% of your annual income on your policy. Plan for that to increase each year as you get older.
You might be wondering “are disability payments taxable?” Here’s some good news: Nope, they’re not.
Since you’re paying for your policy out of your post-tax income (either your salary or freelancer earnings, depending on how your business is structured), you won’t be taxed on your monthly or annual premiums and your payouts will also be tax-free. That means that all of your benefits, should you need them, belong to you.
Should you get long-term disability insurance?
Yep. We think so. Long-term disability insurance is a smart move for your financial future.
We never know what’s around the corner. And, while self-employment has its benefits (like flexibility and not needing to fight with coworkers over the office thermostat), there are also drawbacks—like facing a more unpredictable employment situation than a traditional worker.
That’s why creating a financial safety net for yourself is so important. It’s one less thing to worry about if and when the unexpected happens.
You could be thinking, “Oh, it won’t happen to me!” but, statistically speaking, there is a higher chance of something happening than not. Cue the cringing. That’s why taking out a long-term disability insurance policy is a smart decision. Don’t think of it as yet another expense—think of it as an investment in your future.
Looking to take the next steps in protecting your business? Apply today for “no exam” disability income insurance with Asteya.