Disability Insurance for Independent Contractors
You’re either employed or unemployed, right? Wrong. Millions of Americans work as independent contractors because they love the flexibility and earning potential this gives them. There are many upsides to working as an independent contractor, but there’s also a downside: workers don’t have access to job-based benefits. For instance, they need to buy their own 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.
Who Works as an Independent Contractor?
The 2022 Freelance Forward study from Upwork found that 60 million Americans were working as freelancers. Some of these workers may freelance as a side hustle on top of their traditional job, but many people are full-time freelancers.
Independent contractors work in a wide variety of industries, including as:
- Doctors
- Lawyers
- Accountants
- Marketers
- Writers
- Photographers
- Graphic Artists
- Computer Programmers
- Website Designers
- Architects
- Insurance Sales Agents
- Beauticians
- Hairstylists
- Tattoo Artists
Independent Contractors Have an Income Worth Protecting
According to 2020 freelance research data from Upwork, freelancers earn an average hourly rate of $20. However, it’s important to remember there’s a tremendous amount of variation. Independent contractors work in a wide range of industries – a freelance delivery driver doesn’t earn the same as an independent doctor.
For example, Upwork says freelancers who work in web or mobile development, marketing, legal, accounting, and other skilled services earn an average of $28 an hour, putting them ahead of 70% of all workers in the U.S. If they work 40 hours a week, they could earn $58,240 a year.
Some independent contractors earn even more. The BLS provides the 2021 median annual salary for the following jobs, all of which are often performed by independent contractors:
- Attorneys: $127,900
- Computer Programmers: $93,000
- Architects: $80,180
- Writers and Authors: $69,510
- Graphic Designers: $50,710
Why Do Independent Contractors Need Disability Insurance?
Anyone can become disabled, regardless of their age, income bracket, or social class. In fact, disability is a lot more common than many people realize. The Social Security Administration says around one in four of today’s 20-year-olds will become disabled before reaching age 67.
Some workers have access to job-based benefits that provide a safety net. They may have sick days, personal paid time off, short-term disability insurance, and long-term disability insurance. This isn’t the case for most independent contractors.
Independent contractors are in charge of their own careers. This can be great when it comes to things like setting hours and determining rates. However, it also means they need to provide their own benefits. As they don’t have group health insurance from their employer, they need to buy their own health coverage. They also need to buy their own disability insurance.
What Kind of Disability Insurance Do Independent Contractors Need?
When a disability means an independent contractor is unable to work, another source of income is necessary.
- Social Security Disability Insurance benefits are rarely the answer. Due to strict eligibility requirements, these benefits are difficult to qualify for. Furthermore, the average benefits are modest.
- Group long-term disability insurance benefits aren’t an option. Although many employers offer group disability insurance to employees, independent contractors are generally ineligible for job-based coverage.
- That leaves individual disability insurance. Freelancers can purchase individual disability insurance policies from several top disability insurance companies. disability insurance for independent contractors
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 Kind of Disability Insurance Do Independent Contractors Need?
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.
Do You Need Disability Insurance for Independent Contractors?
An insurance agent can help you compare your policy options and buy disability insurance coverage that meets your needs. Find an agent.
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