When you work for yourself, every day you can’t work is a day you don’t make money. That’s why, when those sick days add up to an extended illness and no income is collected, it can quickly become difficult to pay your bills or even to make your rent. Unless, of course, you are covered by disability insurance.
What is disability insurance?
In its simplest form, disability insurance is a plan that protects you when an injury or illness prevents you from working. It is intended to help maintain your lifestyle if you are unable to work for an extended period of time. By providing you with a portion of your monthly average paycheck, it prevents you from having to tap into savings, or worse, resort to taking out loans or facing financial hardships.
There are two kinds of disability policies: short term and long term. Let’s take a closer look at each of these policies, and what they are intended to cover.
Short-term disability insurance
A short-term disability policy will cover you for a period of two to five years. Because of the time limits associated with this kind of policy, it is best for people who know their disability will have an end date. It can cover you through a scheduled surgery, cancer treatments, or even through pregnancy and the birth of your child — the freelancer’s version of maternity leave, if you will.
Long-term disability insurance
While short-term policies do place limits on the time period during which you can collect benefits, long-term policies do not. This kind of policy covers you in “worst-case scenarios:” a writer whose severe carpal tunnel syndrome makes it impossible to perform her craft; a driver who experiences permanent vision loss. It's for the types of unexpected mishaps that may never resolve, therefore making it difficult to know when or if you will ever be able to work again.
What kind of coverage does disability insurance provide?
While both short- and long-term disability policies can help make up for lost income, it is important to note that no policy will pay out your full monthly salary.
Depending on how much you are willing to pay, you may find a plan that will cover up to 60% of your monthly income, but keep in mind that most people only need a policy that offers 50% of your typical paycheck. If, for example, you make $50,000 a year, you should aim for approximately $2000 a month in disability coverage.
Another factor to consider when choosing your policy is the waiting period before benefits can kick in. In other words, how long you have to be unable to work before you can start collecting monthly checks. With short-term policies, the waiting period is minimal — typically about a week between the injury or illness and the ability to collect benefits.
With long-term plans, the waiting period will be longer, and may affect the premiums you’ll pay on the plan. At Freelancer’s Union, we offer long-term policies with 30-day and 90-day waiting periods, meaning you would have to be unable to work for one to three months before you would receive a check. As a general rule of thumb, you should expect to pay more for a plan with a lower waiting period.
I’m young and healthy. Do I really Need to Think about Disabilities?
Unfortunately, the answer to this question is a resounding “yes.” According to the Social Security Administration, 25% of 20-year-olds will become disabled before they are old enough to retire. The SSA also notes that 1 in 5 Americans are currently living with disabilities, which means that each and every one of us should consider a sudden inability to work a very likely possibility. While this may seem frightening, we can help alleviate some of that worry by insuring against this possibility.
How do I apply for disability insurance?
Many insurers will put you through a rigorous health exam prior to obtaining disability insurance. They may also penalize you for being self-employed, over a certain age, or in a field that they determine to be “high-risk.”
Fortunately, at Freelancer’s Union, we have streamlined the process to help self-employed individuals secure the protection they need. When purchasing one of the two long-term disability plans we offer, you will need to submit several years of tax returns in order to confirm your income and determine your available benefits.
After that process is complete, you will select your desired waiting period and your monthly premium will be determined (check out this chart to help understand how much your policy is likely to cost)