Insurance for Freelancers What You Should Know About Disability Insurance
Author : Yuwanda Black
Many freelancers don’t think about disability insurance — at least not in the way they worry about having health insurance. While it can be costly, let’s look at what it covers, so you can accurately gauge the cost of not having it.
What is Disability Insurance Exactly?
Disability Insurance, often called DI or disability income insurance, is a form of insurance that insures the beneficiary’s earned income against the risk that a disability will make working, (and therefore earning), impossible. It includes paid sick leave, short-term disability benefits, and long-term disability benefits. [Source: Wikipedia ]
Freelancers Insurance: Common Questions about Disability Insurance
Following are a few of the most common questions many ask about this form of insurance for freelancers.
Disability Insurance for the Self Employed: What Type of Disability Insurance Coverage Should You Get When You Work Freelance Fulltime?
There are a few forms of this type of insurance (eg, high-limit, key person, individual, etc.). The type you’ll want to look into when you work freelance fulltime and start shopping for it is individual coverage. This type of coverage is for independent contractors, freelancers and even those who work for others, but whose employer doesn’t provide this type of insurance.
How Much Does Disability Insurance Cost when You Work Freelance Fulltime?
How much you’ll pay depends on the type and amount of coverage you get. According to the Insurance Information Institute , the average cost for a disability policy is 1-3 percent of your gross annual income.
You see, the way it works is, disability insurance will only pay you a “percentage of” your salary/calculated earnings if you become impaired. Some policies, for example, pay 50 percent; others 65; and yet others 70-80 percent.
Disability insurance is not designed to pay you 100 percent of your pre-disability income because it is designed to mitigate salary loss for a defined period of time (usually a year or less). If you’re ever deemed permanently disabled, then you’d be looking at collecting some other type of benefit, eg, social security.
Insurance for Freelancers: How Much Would You Receive Each Month If You are Disabled for a Time When You Work Fulltime?
This depends. To explain, most disability insurance caps what you can receive on a monthly basis. So, for example, if you’re freelancing and earning $30,000 per year, that’s $2,500 per month. If you elect a policy that pays you 65 percent of your income, then you’d be getting $1,625 per month in disability benefits, right? Not necessarily.
If you elect a policy that has a cap on it (and these are usually cheaper), then your policy might state that you can only receive $1,250 per month (50 percent) of your pre-disability income. Other factors that can affect how much you receive include:
How long you’re willing to wait before benefits start if you’re injured (the longer you wait, the cheaper the policy); was the injury obtained while performing job duties; and how long you need to receive payments, among many other factors. As you can see, there’s a lot that goes into getting disability insurance.
Do You Really Need Disability Insurance When You Work Freelance Fulltime?
In my experience, this depends on the profession. If you’re a lawn care provider or nature photographer, for example, you stand a higher chance of obtaining an injury than a freelance writer or virtual assistant. Many freelancers never pick up this type of insurance. But again, it all depends on you and your family’s needs.
The best thing to do when you’re first learning how to freelance and are considering your insurance needs is to consult a few qualified agents. Then, take the totality of your life into consideration, eg, if you have kids; how risk averse you are (eg, if you’re a young, single, healthy freelance writer, you may want to wait to take on this expense); the type of freelance work you do; etc.
Yuwanda Black is a long-time freelancer who lives internationally and has made her living completely online since 2007. Learn more about how to freelance successfully, and get the free ebook, Living the Freelance Life! when you subscribe at InkwellEditorial.com.