Disability Insurance for Self Employed Workers

People aren’t just saying goodbye to the office – they’re saying goodbye to traditional employment. Whether you call it gig work, freelance work, or small business ownership, self-employment is on the rise. These entrepreneurs need to provide their own benefits, including disability insurance for self-employed workers.

The Self-Employed Outlook

According to the U.S. Bureau of Labor Statistics (BLS), there were 9.6 million self-employed workers in the U.S. in 2016. That number is predicted to increase at a rate of 7.9 percent to reach 10.3 million by 2026.

The projected growth rate is slightly faster than the growth rate for all workers, meaning that self-employment is increasing faster than employment as a whole. The pandemic may push these numbers even higher.

Pew Research Center says that 16 million workers identify as self-employed – a figure that’s already substantially higher than the BLS figure – and post-pandemic recovery has been stronger for self-employed workers than other workers. According to the Federal Reserve Bank of St. Louis, self-employment grew during the pandemic and the Great Resignation. In February 2022, nearly 11 percent of the country’s 157 million workers were self-employed.

Regardless of the current trends or exact figures you use, one thing is clear: self-employment is a huge part of the US economy. Many people earn a living by working for themselves – without relying on traditional employers. Since they’re investing in themselves, it makes sense to invest in income protection, too.

disability insurance for self employed
disability insurance for self employed

The Self-Employed Outlook

According to the U.S. Bureau of Labor Statistics (BLS), there were 9.6 million self-employed workers in the U.S. in 2016. That number is predicted to increase at a rate of 7.9 percent to reach 10.3 million by 2026.

The projected growth rate is slightly faster than the growth rate for all workers, meaning that self-employment is increasing faster than employment as a whole. The pandemic may push these numbers even higher.

Pew Research Center says that 16 million workers identify as self-employed – a figure that’s already substantially higher than the BLS figure – and post-pandemic recovery has been stronger for self-employed workers than other workers. According to the Federal Reserve Bank of St. Louis, self-employment grew during the pandemic and the Great Resignation. In February 2022, nearly 11 percent of the country’s 157 million workers were self-employed.

Regardless of the current trends or exact figures you use, one thing is clear: self-employment is a huge part of the US economy. Many people earn a living by working for themselves – without relying on traditional employers. Since they’re investing in themselves, it makes sense to invest in income protection, too.

disability insurance for self employed

Self-Employed Workers Have an Income Worth Protecting

It can be hard to talk about income ranges for the self-employed because there’s so much variation. Some people do freelance work on a part-time basis, whereas others work full-time schedules (or more). Some have years of experience and specialized training, whereas others are new to their fields. Self-employed workers can also be found in a wide range of industries: everything from art to tech to finance.

Talking about average income is therefore challenging, but there are some figures available. According to ZipRecruiter, the average is $81,911 a year, with a range of $13,500 to $277,500. That’s some range!

When you look at individual industries, the earnings potential starts to come into focus. According to BLS:

  • 19 percent of graphic designers are self-employed and their 2021 median annual pay was $50,710.
  • 68 percent of writers are self-employed and their 2021 median annual pay was $69,510.
  • 30 percent of chiropractors are self-employed and their 2021 median annual pay was $75,000.
  • 27 percent of psychologists are self-employed and their 2021 median annual pay was $81,040.
  • 20 percent of personal financial advisors are self-employed and their 2021 median annual pay was $94,170.
  • 17 percent of lawyers are self-employed and their 2021 median annual pay was $127,990.
  • 16 percent of dentists are self-employed and their 2021 median annual pay was $163,220.

Although there’s a wide range in annual earnings for self-employed workers, the numbers make it clear that many freelancers are making a good living. These entrepreneurs likely depend on their income to cover rent or mortgage, bills, groceries, and other costs. They may have a family that depends on their income, too. What happens if a disability prevents a self-employed worker from earning money?

With no safety net, the situation can get dire fast.

 

disability insurance for self employed

No Job-Based Long-Term Disability Insurance

Most traditional jobs provide both wages and benefits. According to the BLS, benefits account for approximately 30 percent of total employer costs for private industry workers. Whereas things like health insurance and a retirement account are important to many employees, other benefits like disability insurance are also common. The BLS also says that employers offer around 40 percent of civilian workers short-term disability insurance as an employee benefit and 35 percent of workers long-term disability insurance.

Employees receive these benefits from their employer, but self-employed workers are their own employers. They don’t receive benefits unless they buy benefits for themselves.

disability insurance for self employed

Why Workers Can’t Depend on Social Security Disability Insurance

Self-employed workers don’t have access to job-based disability insurance, but they pay self-employment taxes on their income. Since they pay Social Security taxes, they can qualify for Social Security Disability Insurance (SSDI) benefits. However, self-employed workers probably shouldn’t count on SSDI.

One issue is that the Social Security Administration (SSA) has a strict definition of disability, resulting in an approval rate for claims that is less than one in three. The SSA also warns that benefits are modest, with the average monthly amount barely being enough to keep beneficiaries above the poverty level. This means that most workers experiencing a disability won’t qualify for SSDI – and those who do probably won’t receive enough money to retain their previous lifestyle. This is why private disability insurance is so important.

disability insurance for self employed

The Odds of Disability

We’ve seen that self-employed workers can’t depend on job-based disability insurance or the Social Security Disability Benefits program. But do they really need to worry about disability?

Yes.

The SSA says that a 20-year-old has a more than one-in-four chance of experiencing a disability before reaching retirement age. One in four. Those are some serious odds.

Disability can stem from a wide range of conditions, including cancer, back injuries, heart disease, and mental illness, just to name a few. The hard truth is that disability can strike at any age – a person can be healthy one month and disabled the next. When this happens, the person can lose the ability to earn a living while simultaneously racking up medical bills. As a result, savings are depleted fast. At this point, it’s too late to buy disability insurance. However, if you buy self-employed disability insurance when you’re still healthy, you can lock in good rates and coverage terms.

disability insurance for self employed

Securing Individual Disability Benefits for the Self-Employed

Self-employed workers are betting on themselves – but it’s smart to hedge those bets with disability insurance for self-employed workers.

Individual disability insurance provides paycheck protection. If the policyholder experiences a qualifying disability, the benefits will replace a portion of the lost income.

  • Unlike job-based benefits, individual disability insurance is fully portable, meaning workers can keep the policy when they switch jobs or become self-employed.
  • The coverage terms are also flexible, meaning workers can choose the riders, maximum benefit, benefit period, and elimination period that makes sense for their needs and budget.

Self-employed individuals are not required to take whatever coverage their boss gives them. As they are their own boss, they can find the best disability insurance company and the best disability insurance policy for their needs.

disability insurance for self employed
  • Have you taken out bank loans to fund your business? Bank Loan Disability Insurance covers monthly loan payments.
  • Do you have business overhead costs? Business Overhead Expense insurance covers certain monthly business expenses, such as rent and utilities, usually for a period of 12 to 24 months.
  • Do you have a business partner? Disability buy-sell insurance can fund the buy-out of a business if one partner is unable to work due to disability.
  • Do you have employees? Guaranteed standard issue disability insurance can be a good fit for employee groups of five or more.

Self-employed individuals have taken control of their careers. Now it’s time for them to take control of their disability risk by purchasing self-employed disability insurance.

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Other Disability Benefits for the Self-Employed

Individual disability income insurance provides key protection. However, some self-employed individuals may need other types of disability coverage, depending on their situation.disability insurance for self employed

Other Disability Benefits for the Self-Employed

Individual disability income insurance provides key protection. However, some self-employed individuals may need other types of disability coverage, depending on their situation.

disability insurance for self employed

disability insurance for self employed
  • Have you taken out bank loans to fund your business? Bank Loan Disability Insurance covers monthly loan payments.
  • Do you have business overhead costs? Business Overhead Expense insurance covers certain monthly business expenses, such as rent and utilities, usually for a period of 12 to 24 months.
  • Do you have a business partner? Disability buy-sell insurance can fund the buy-out of a business if one partner is unable to work due to disability.
  • Do you have employees? Guaranteed standard issue disability insurance can be a good fit for employee groups of five or more.

Self-employed individuals have taken control of their careers. Now it’s time for them to take control of their disability risk by purchasing self-employed disability insurance.

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