Disability insurance for the self-employed

Disability insurance is a highly recommended type of insurance that provides a monetary safety net in the event that an illness, injury, or disability causes you to become unable to work.
Loss of work due to a disability is one of the chief reasons a person loses their home or car. Benefits provided by a disability insurance policy allow you to continue to support yourself and your family, and pay for living expenses for the period of time a disability prevents you from being able to work and earn an income.
People most frequently come in contact with disability insurance when it is offered through an employer as part of a benefits package, or when a professional organization offers it to its members. It is recommended that everyone who needs to work in order to provide themselves with an income to pay for living expenses should obtain some disability insurance. How though, does disability insurance apply to you if you are self-employed?

If you are self-employed or run a business out of your home, any recommendation of obtaining disability insurance still applies. In fact, disability insurance may be more beneficial to someone who runs their own business because they lack the paid sick-leave that traditional employment provides.
Although you do not have the opportunity to acquire disability insurance through an employer-offered benefit, since you are your own employer, you can purchase individual coverage yourself. If, after looking through your finances, you find your savings are not sufficient to cover a lapse of income of at least 6 months, you will want to seriously consider purchasing coverage.
Disability insurance coverage may prevent you from losing your home in the instance a disability caused you to become unable to work and make house payments. For someone who is self-employed, particularly if they operate their business from their home, the results of such an occurrence could be disastrous.

Unlike disability insurance offered by an employer, known as group coverage, purchasing individual disability insurance gives you the opportunity to find the best policy with the most coverage from a variety of insurance companies. Bear in mind though, individual disability insurance is not cheap. Indeed, it usually dwarfs premiums for other types of insurance, and may even be more expensive and possibly more difficult to obtain for someone who is self-employed.

There are two types of disability insurance you can obtain, depending on your needs and budget:

Short-Term Disability
This type of disability is frequently provided by an employer but can also be purchased individually. When an individual becomes injured or ill and is covered by short-term disability, they receive an income during the early period of their injury. Depending on the insurance provider, the individual may receive disability benefits for 2 weeks or up to 2 years.

Long-Term Disability
Long-term disability may be offered by an employer or purchased separately by an individual. This type of disability replaces income during an extended period of time, normally for 2 years, 5 years, or until the disabled recipient turns 65. There are two types of long-term insurance available to individual consumers:
- Non-cancelable long-term disability: Under this type of long-term disability coverage, the recipient has the assurance that their premium (monthly cost of insurance), will never be raised, and, that their policy (the insurance contract) cannot be cancelled as long as it is being paid on time;
- Guaranteed renewable long-term disability:This type of policy, usually less expensive initially, allows the premium to be raised, but only if it affects a class of policy-holders.

When obtaining disability insurance as a self-employed individual, special rules apply.

Firstly, the amount of income you can protect as stipulated in your policy is only the amount you have indicated on your tax return. As a business owner, your actual earnings may be higher, but if you were not able to work and began receiving benefits, these monthly payments would be a percentage of the amount earned as shown on your tax return.

Secondly, to be eligible for disability insurance as someone who is self-employed, you must meet the following requirements:

- Your home business has been operating for at least 3 years;
- You are an independent contractor;
- Your annual income is at least $35,000
- Your employment is full time, with a 30 hour minimum of at-home or away from home work each week.

Other than these requirements, to obtain disability insurance you need to provide appropriate tax returns and legal documents to show your income and to prove that you are indeed a legally operating business.