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Why Disability Insurance Is Important for the Self-employed?

5 min

Whether you have your own small business or work as a freelancer, while being your boss has its perks, you must look out for yourself and keep your finances stable for the rainy days. 

We don’t usually think about the hard times if we have a flourishing business or a freelancing career going well, but what if you were met with an accident or lost the ability to work for months?

This is where disability insurance can help you sustain your income flow and help you easily overcome the hard days. In this article, we will help you understand everything you need to know about disability insurance so that you, too, can secure your finances ahead of time. 

Before we begin, let’s first explore what we understand about disability insurance

What is disability insurance?

Disability Insurance is a form of income protection insurance that you may require if you are incapable of living temporarily or permanently. If you are a sole proprietor or a freelancer, this kind of coverage will help you meet your financial needs if you cannot earn a living for a short period or permanently. 

There are two types of disability insurance: Permanent Disability Insurance and Sickness or Long-Term Disability Insurance and Injury Disability Income Insurance. While permanent disability insurance offers coverage in the event you suffer from a permanent illness or injury that completely prevents you from working again, sickness and injury insurance offers protection in the event you are temporarily incapable of earning a living. This coverage provides a monthly benefit for two to five years, protecting your source of income. 

Now that we have understood what disability insurance is, you might be wondering how much you need to invest for this kind of coverage. Let’s explore how much you require for disability insurance

How much coverage do you require for disability insurance?

To configure how much coverage you require, there are a lot of factors that need to be considered. Everyone has unique financial needs and debts that they need to pay off. If you were to go without your usual flow of income for a few months or longer, you need to make sure you have enough resources to sustain a living and pay your debts on time. 

To understand the coverage, begin with estimating your living expenses:

  • Food

  • Loan Payments

  • Utilities

  • Housing 

  • Auto expenses

  • Childcare

  • Any other form of day-to-day living expenses

Once you have figured out your living expenses, you must consider your monthly business expenses:

  • Rent or mortgages

  • Loan payments

  • Taxes

  • Insurance

  • Salaries or other compensations

Once you have a solid estimate of the total of your living and business expenses, you will have an understanding of the amount of coverage you require. While disability insurance can cover up to 80% of your monthly income, by reducing redundant expenses and finding economical ways of living, you can make the most of your disability income insurance. 

Now that you understand the amount of coverage you require let’s address the most crucial concern about how much you should pay for your disability insurance

How much should you pay for disability insurance?

How much you need to pay for your disability insurance depends on several factors, such as your occupation, income level, coverage amount, expenses, health history, and lastly, age. Let’s look at a few of these.

1. Occupation 

Your occupation highly determines your premium rate, as some jobs are comparatively more dangerous to one’s health than others. For example, you have more chances of experiencing a permanent illness or injury if you are a construction worker. At the same time, someone working in a corporate firm is less likely to suffer an injury. If you are self-employed, these chances don’t completely rule out as your work circumstances determine your premium rates at the end of the day. 

When you apply for disability insurance, your insurer would first assess your occupation and categorize you into one of the many occupation classes, assess the risk of disability, and consequently determine how much you are liable for. 

2. Income

How much you need to pay for disability insurance is also mainly related to your monthly income. As disability insurance will offer a monthly benefit that covers 60-80% of your monthly income, your coverage will increase if you earn six figures. You will be required to pay a higher premium than an individual with lower pay. 

3. Age

Age plays a vital role in determining the premium rate. It increases with age as the risk of disability increases as one grows old. Hence, applying for disability insurance at a younger age will reduce the premium rate. 

4. Health 

Health, too, plays an essential role in determining the premium rate. The insurer will assess your medical history and determine your risk of disability. Suppose you are experiencing any underlying condition that could increase your chances of disability. In that case, you might be asked to pay more for your coverage or have specific exclusions in your claim wherein the insurers will not cover your disability condition. 

5. Gender

Lesser known to many, women have higher chances of experiencing disability than men. As a result, women must pay 25% to 75% more for their coverage than men. 

6. Benefit and waiting period

In disability insurance, the benefit and waiting period plays a phenomenal role. While the longer you wait for your coverage, the lower the rate for your monthly premiums, it is the opposite in the case of the benefit period. You must pay higher premiums for policies with more extended benefit periods than shorter ones. 

Therefore, for example, if you have an emergency fund that you can rely on while you apply for disability insurance with a 90 days waiting period, your monthly premiums will be much lesser. 

Now that we have understood the different factors that play key roles in determining the premium rates, let’s look further into how disability insurance works for business owners and freelancers or contractors. At the same time, all these professions fall under the self-employed category, and disability insurance functions differently for these categories. Let’s find out. 

How does disability insurance work for business owners?

If you have your own business or run a professional practice, there are overhead expenses involved that you need to consider if you are applying for disability insurance. These expenses will incur even when you stop earning. Hence you must consider these expenses while configuring the coverage. 

These could be property taxes, employee salaries, rent, business loan interest, or utilities. The waiting period for such coverage is also lesser than personal disability insurance and usually has shorter payout periods of less than 24 months. 

As you are at the center of your business, you must secure your finances for unexpected times. When insurers calculate the premium rate for business owners claiming disability insurance, they calculate their annual income depending on the following factors:

  • The legal structure of your company

  • Your annual salary

  • The share of the business owned by you

  • Your annual bonus and commission

  • How much your business makes in a year

  • How does disability insurance work for freelancers or contract workers?

Freelancers are not legal employees of a company, nor are they owners of a legal entity; hence they need to safeguard their finances for unexpected times. While a traditional employee is entitled to several medical and other financial benefits, the same is not valid for freelancers. 

To be eligible for disability insurance, you need to submit proof of two to three years of freelance income. Insurance companies review the income tax returns from the two to three years of income proof to calculate your annual income. Depending on the annual income figure, your coverage is determined by the insurer. 

Secure the future of your finances with disability insurance by Asteya!

At Asteya, you get the coverage you deserve. Our disability insurance plans are comprehensive and planned out for maximum benefits. With disability insurance in place, you need not worry about rainy days and go about your self-employed career with ease. 

From long-term disability insurance to sickness and injury disability insurance, the plans and benefits are tailored so that you can protect your source of income when required and get back on your feet stronger! You can only be your boss when you can be financially independent. Hence, choose the best disability insurance plan today and scale heights in your professional life. 

To learn more, check our disability insurance plans on our Asteya website.




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