Disability Insurance for Independent Contractors

Independent Contractors vs. Employees

Employees generally carry out work the way their employer wants. Their employer is in charge of when, where, and how they work. In exchange, they earn a salary or hourly wage and gain many employee protections and benefits.

Independent contractors have more freedom in how they complete their work. They may set their own hours and they often work from home. However, they don’t have access to all the same protections employees have and they rarely receive any employee benefits.

Independent contractors can be considered self-employed, especially when it comes to things like taxes and benefits. Gig workers and freelancers can also be considered independent contractors, meaning they’re self-employed, too. In other words, freelancers, gig workers, and independent contractors all need disability insurance for self-employed professionals.

Case in Point

A successful graphic artist works as an independent contractor, meaning she is able to choose the clients she works for, how much she works, and how much she charges. She loves her job. Then, an eye disease causes her to lose her vision. As an independent contractor, she doesn’t have any group long-term disability insurance coverage, but she doesn’t think she could survive on the modest benefits she might receive through Social Security. Thankfully, she has individual disability insurance. She applies for benefits and her claim is approved. After a three-month elimination period, she begins receiving benefits. The benefits give her the breathing room she needs to adjust to her condition and figure out what she’s going to do next – without worrying about how she’s going to pay her bills in the meantime.

What Should Independent Contractors Look for in a Disability Insurance Policy?

When looking for an individual disability insurance policy, independent contractors need to look for the features that meet their needs, including:

Portability: Unlike group policies, individual disability insurance policies are portable. This means you can keep your coverage even if you switch jobs or go into business for yourself.

Benefits: A disability insurance policy will replace a portion of your income. Make sure you’re replacing enough of your income to get by if you experience a disability. Pay attention to monthly benefit caps that could decrease your amount and consider a policy with a future purchase option that lets you increase your benefits as your income increases.

Definition of Disability: If your job requires specific skills, you may like to buy a disability insurance policy with an own-occupation definition of disability. Otherwise, you might be fine with an any-occupation definition of disability.

Elimination Period: This is how long you have to wait before you can start collecting benefits if you experience a disability. You’ll need to have enough personal savings to cover the elimination period you select.

Benefit Period: This is how long you can continue to receive benefits. With some disabilities, you may be able to recover in a year or two, but other disabilities are permanent. Keep this in mind when selecting your benefit period.

Perks: Individual disability insurance policies often come with riders that can provide additional benefits. For example, if you have student loan debt, you might be interested in a student loan rider.

Cost: Disability insurance often costs around 1% to 3% of the policyholder’s income. If you need to lower the cost of your disability insurance policy, consider a longer elimination period or drop optional riders you don’t need. You should also shop around for the best offer, as a different insurance company might give you a better rate.