When you’re an entrepreneur, there are a lot of advantages. You have more control over your time and your life than someone who works for an employer, and you may find that it’s more motivating to be able to build your own business.
Of course, there are downsides as well. As an entrepreneur, for example, what would happen if you were in an accident and couldn’t work?
If you have an employer, you might have disability insurance, but can self-employed people get the same protection?
What Is Disability Insurance?
Disability insurance is something that pays a portion of your income if you can’t work for a period of time due to an injury or illness. It’s often recommended that anyone who receives a salary or depends on their paycheck has this protection.
There are short- and long-term disability coverage plans.
Either type of policy will typically cover a portion of your base salary up to a limit, which is usually up to $10,000.
Long-term policies might also cover other things, like training, to help you return to the workforce.
A short-term policy will usually replace anywhere from 60 to 70% of your base salary, and long-term disability insurance replaces anywhere from 40 to 60% of your base salary.
If you have short-term disability insurance, it may pay out just for a few months up to a year. There is also typically a waiting period of around two weeks between your injury and when you receive benefits. With long-term coverage, your benefits end when your disability ends and the waiting period is usually 90 days.
Most people sign up for employer-sponsored short-term disability coverage. It’s fairly common for an employer who offers disability insurance to pay some or all of the premium costs, and some states require employers to do so.
There are other options if this isn’t something available through your employer, however.
What Are Your Options If You’re Self-Employed?
If you are self-employed, you can get disability insurance. You can buy it on your own, and as with other policies, you’ll need to do an interview and medical exam. If you’re self-employed, you’ll also have to show you get an income from your business.
As a business owner, you might actually need additional coverage beyond what the typical employee would need.
For example, it might be worthwhile to consider disability overhead insurance.
Disability overhead insurance covers expenses that stem from operating a business, like contract obligations, in your absence.
If you have a few employees, you might also think about offering group disability insurance, which you can use as well. If you buy group disability insurance, everyone buys into a set benefit total and then employees might not have to show their income like they would with an individual policy.
Overall getting disability insurance is a fairly simple process, and it’s really something self-employed entrepreneurs shouldn’t overlook.
There is something called an own-occupation disability insurance policy, and this means that you are only required to be too disabled to keep working at your current job. It’s best to get this type of policy because then you might be able to receive benefits and still work at the same time.
What About SSDI Benefits?
Another question self-employed people often have as it relates to being temporarily unable to work is whether or not they would qualify for Social Security Disability Insurance benefits.
If you work for yourself, you pay Social Security taxes either quarterly or annually when you file your income tax returns.
You are also eligible for SSDI benefits if you are self-employed.
However, you have to have worked long enough to qualify for what is often called work credits. This also allows you to be eligible for retirement and survivor benefits.
If you earn 40 credits in ten years, you are then eligible to receive full benefits.
You earn one credit for each $1,260 you make a year and pay Social Security taxes on.
The amount of SSDI benefits you’re eligible for depends on your reported earnings and not work credits. Work credits are only relevant to qualify for benefits.
The benefit amount is based on what’s called the average indexed monthly earnings, and it’s a fairly complex formula.
Overall, entrepreneurs tend not to give themselves the same protections that employees have, and it’s important to do so. You can get disability insurance, and you may also be eligible for SSDI if you’re in an accident or something happens that keeps you from working.