Unless you’ve been living under a rock, you’ve probably heard about the Great Resignation and the current worker shortages. What you might not know is that many people aren’t just quitting for another job. They’re leaving behind traditional employment in order to go into business for themselves. Self-employed people have unique disability insurance needs, so this shift has big ramifications for disability insurance.
The Great Resignation – Where Are Workers Going?
A record number of people are quitting their jobs. According to the Bureau of Labor Statistics, there were 4.5 million quits in November 2021, an increase of 370,000 compared to the previous month. For comparison, in November 2019 – before the COVID-19 caused widespread disruption – only 3.5 million people quit.
Many people have been talking about the impact on businesses, some of which are struggling to find enough workers to keep their doors open. But there’s another issue that deserves attention: where are all of these workers going?
Many Workers Are Embracing Self-Employment
The Census Bureau’s Business Formation Statistics report shows that monthly business applications skyrocketed in late 2020 and remained high in 2021. In other words, people have been opening new businesses at a much higher rate than normal. According to an analysis of the Census Bureau data from the Economic Innovation Group, the number of filings for business likely to hire employees surged in 2021. As of September, there were about 409,000 more filings compared to the same point in 2019.
Freelance and gig work have also increased in popularity as workers prioritize flexibility and remote work. Upwork says that 57 million people did freelance work in 2019. This number could increase by 17% in the near future if the 10 million Americans who are considering freelance work now decide to make the transition.
Different Types of Self-Employment
The term “self-employed” can be used in a number of different ways. According to the IRS, you’re self-employed if you carry on a trade or business as a sole proprietor or independent contractor, or if you do so as a partner, or if you’re otherwise in business for yourself. Basically, if you work but you’re not considered an employee, you’re probably self-employed.
- Gig workers, such as those who work for Uber or DoorDash
- Professionals, such as accountants or programmers, who work as independent contractors
- Writers, artists and other creators who develop projects for clients
- Small business owners, whether or not they employ others
The Self-Employment Drawback: No Benefits
For employees, benefits can be just as important as salary and wages. According to KFF, 49.6% of Americans get their health insurance through work. Gallup found that among U.S. workers who get health insurance through their job, one in six stay at a job that might otherwise leave just because they don’t want to lose their coverage.
But it’s not just health insurance. Employers often offer a range of other benefits, such as life insurance, vision insurance, dental insurance and disability insurance. The Bureau of Labor Statistics says that 40% of civilian workers had access to short-term disability insurance coverage through their job as of March 2020, and 35% had access to long-term disability insurance through their job.
These job-based benefits might not provide the level of protection that some workers need, but at least they provide something. Unfortunately, these benefits often aren’t portable. If a worker leaves the company, they also have to leave the benefits behind.
Self-Employed Individuals Need DI Coverage
Self-employed individuals don’t get insurance from a job, but this doesn’t mean they don’t need coverage. In addition to health insurance, disability insurance should be a priority for many self-employed workers.
Imagine what happens if a self-employed worker experiences an illness or injury. They don’t have any sick days or other paid time off to use. If they can’t work, in most cases, they can’t earn money.
According to the U.S. Small Business Administration, approximately one out of every three businesses fails within the first two years, and only about half survive for at least five years. Starting a new business is hard. Many people work long hours to get established. If an illness or injury prevents them from working, their business may fail, and all their hard work will be undone.
By purchasing disability insurance, self-employed workers can protect themselves against this risk.
Self-Employed Individuals Have an Income Worth Protecting
Anyone who depends on a paycheck can benefit from disability insurance. However, people earning less than $50,000 might not be good candidates for individual disability insurance.
So how much do self-employed individuals make? There’s a lot of variation. However, many self-employed workers earn a solid income. In fact, Upwork says that 60% of people who left a regular job to do freelance work earn more as a result. In 2020, freelancers in the United States earned an average of $20 per hour. Among freelancers working in skilled services, including web and mobile development, marketing, legal and accounting, the average hourly rate was $28. At 40 hours per week, 51 weeks per year, that comes out to $57,120.
Some self-employed individuals earn much more. For example, according to FlexJobs, freelance graphic designers earn an average of $36 per hour, and freelance technical writers earn an average of $41 per hour.
For individuals who grow successful businesses with employees or other independent contractors, the sky’s the limit. These individuals may also have additional disability insurance needs.
Best Disability Insurance for Self-Employed Individuals
There’s a lot of variety when it comes to types of self-employment, so it makes sense that there should be a variety of disability insurance products, too.
Some people may need multiple disability insurance products to cover themselves and their business. Here are some of the best coverage types to consider:
- Individual Disability Insurance: Because self-employed workers don’t get disability insurance benefits through a job, they need to supply their own coverage. Individual disability insurance will pay a portion of the policyholder’s income if they become disabled. When reviewing policies, pay attention to the amount of coverage, the waiting period, the coverage period, whether the policy uses an own-occupation or any-occupation definition of disability, whether the policy is non-cancelable and/or guaranteed, and any riders available.
- Retirement Plan Disability Insurance: Many Americans aren’t ready for retirement, and self-employed individuals may be especially far behind on their savings. A disability could put an individual even farther behind. Retirement plan disability insurance makes retirement savings contributions if the policyholder experiences a total disability.
- Bank Loan Disability Insurance: Many small business owners take out a loan to finance their business. Bank loan disability insurance can cover the monthly loan amount if the policyholder is unable to work due to a disability.
- Business Overhead Expense Insurance: It takes money to make money, but the overhead expenses don’t stop just because a business stops earning money. Business overhead expense insurance covers certain overhead expenses if the policyholder experiences a disability.
Help Protect the Self-Employed
More and more people are joining the ranks of the self-employed. You can help them achieve long-term success by providing the disability insurance coverage they need. Disability Insurance Services is here to help you. Contact your regional office to learn more.