Disability Insurance for Self-Employed Entrepreneurs

For the self-employed, disability insurance comes in two forms, with distinct differences.

Long-Term Disability Insurance Long-term disability insurance, LDI, covers any long-term disability. There is a longer waiting period, usually 30 to 180 days, with LDI than with short-term disability insurance. The benefit period is also longer with LDI. The typical benefit span is 5 years, but it can be extended up to retirement age. LDI pays up to 70 percent of your pre-tax income.

There are also three types of LDI:

  • Own occupation coverage—This covers your income from the job you were performing when you became disabled, even if you now have another type of job.
  • Regular occupation coverage—This covers your income in the job you have at the time of disability. You cannot be forced to take another position, and you get 100 percent of your income. If it is your choice to work in another position, your benefit will be adjusted accordingly.
  • Any occupation insurance—This is used when you cannot work at any job at all. This type is very strict and doesn't typically come into play until you have been on regular occupational disability for at least 5 years.
Short-Term Disability Insurance

Short-term disability insurance is usually the best choice for the self-employed. This covers all short-term disability. This disability insurance has a 2-week waiting period and usually has a benefit period of 13 to 26 weeks. Short-term disability insurance will also cover up to 100 percent of your income.

Obtaining Disability Insurance

You must meet certain criteria to be eligible for disability insurance when you are self-employed. If your business is conducted in your home, you may need a sign on the front of your home to help establish that a business is run there. Having a separate entrance to your work area is also a good idea. Keep your bookkeeping records accurate and very detailed. You must be able to prove that you are earning an income and demonstrate how much you are earning.

Research the insurance thoroughly. Ask questions and compare information. An insurance agent will be able to answer the many questions that you may have and can write the policy for you.

If you can't currently afford to purchase disability insurance, then find out what your cost will be and make that a company goal.
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