Can You Afford to Get Hurt When You're Self-Employed?
- Marc Lowe
- Jun 12
- 5 min read
Did you know that approximately 1 in 4 Americans will experience a disability during their working years? For self-employed individuals, the stakes are even higher. As a self-employed worker, your ability to earn an income is solely dependent on your ability to work. If a disability strikes, it can lead to financial turmoil and uncertainty. This is where disability insurance becomes not just important, but essential. In this comprehensive guide, we’ll explore why self-employed individuals should prioritize acquiring disability insurance and how it can safeguard both their health and financial future.
Understanding Disability Insurance
Disability insurance provides you with a source of income if you become unable to work due to illness or injury. For self-employed individuals, this type of coverage is critical, as they often lack employer-provided benefits. There are two main types:
- Short-term disability insurance: Covers a portion of income for a limited period, usually up to six months, after an incapacitating event.
- Long-term disability insurance: Kicks in after the short-term benefits expire and continues to cover income for several years or even until retirement.
The Importance of Insurance for Self-Employed Individuals
In contrast to employees who enjoy the security of employer-sponsored benefits, self-employed individuals must actively seek out their financial safety nets. Here’s why disability insurance is particularly crucial:
Loss of Income
When self-employed, your financial stability often hinges on your ability to actively work. If you fall ill or are injured, the income stops, but expenses continue. This situation can quickly escalate into financial distress without a strong protective plan in place.
Medical Expenses Can Be Overwhelming
In addition to the loss of income, medical expenses can pile up. According to the National Health Accounts, Americans spend an average of $11,000 annually on healthcare. Without sufficient savings or income, these costs can lead to significant stress and debt accumulation.
Financial Planning & Peace of Mind
Disability insurance can facilitate effective financial planning. By having a safety net, self-employed individuals can make more strategic business and personal decisions. It also provides peace of mind, allowing you to focus on your work without the constant worry of potential financial fallout from an illness or accident.
Common Misconceptions About Disability Insurance
Understanding disability insurance entails dismantling several commonly held myths.
- "I’m young and healthy, so I don’t need it.": Disability can strike at any age, from sudden injuries to chronic illnesses. Many young adults underestimate their risk.
- "I can always rely on savings": Savings can deplete faster than anticipated, and unexpected expenses can arise. Disability insurance offers steadier protection.
- "It’s too expensive": The cost of not having it far outweighs the insurance premiums, which can often be tailored to fit various budgets.
How to Choose the Right Disability Insurance
Selecting a suitable disability insurance policy involves several important considerations:
Assess Your Needs
Identify how much of your income you need replaced in the event of a disability. A typical recommendation is roughly 60-80% of your income, allowing you to manage expenses comfortably.
Compare Policies
Different providers will have varying offers, premiums, and coverage terms. Research multiple quotes and speak to a financial advisor if necessary.
Read the Fine Print
Be diligent about understanding the policy's specifics—such as waiting periods, exclusions, and whether it covers partial disabilities.
Consider Additional Riders
Certain riders can enhance your policy, like a cost-of-living rider, which helps your benefits keep pace with inflation, or a residual benefit rider that offers partial benefits if you can only work part-time.
Real-Life Scenarios: The Importance of Disability Insurance
Consider the following stories of self-employed friends of mine who faced life-changing disabilities without coverage:
1. My barber: After falling off his motorcycle, my barber had nerve damage in his leg and did not have disability insurance. He had to keep working to pay the bills. His nerve damage was so incredibly painful, and he could barely stand, but since he was a barber, he had to stand up and cut hair all day for the whole year while he was recovering. His savings quickly dwindled while he faced limited hours he could work, and he had to rely heavily on friends and family to do simple things like get in and out of his truck.
2. My friend, an Independent Consultant: A dear friend of mine who works as a digital marketing consultant was diagnosed with a severe illness that required extensive treatment. It took months for doctors to figure out what was wrong and get her on the right medication. Faced with huge medical expenses and no income, the situation forced her to drastically cut back on her lifestyle and business future.
These scenarios highlight the importance of adequate planning and protection against unforeseen circumstances.
Strategies for Integrating Disability Insurance into Your Financial Plan
Integrating disability insurance into your financial plan doesn’t need to be daunting. Here are actionable steps toward a more secure future:
1. Start Budgeting for Insurance: Set aside a part of your monthly earnings specifically for insurance premiums. Treat it as a non-negotiable expense, just like rent or utilities. If Disability Insurance can't fit into your budget, you can do Risk Reduction strategies like avoiding doing dangerous activities that can stop you from working, especially if you work on your feet or have a physically demanding profession.
2. Consult a CFP: A Certified Financial Planner can offer personalized advice and effective strategies that align with your financial goals.
3. Conduct an Annual Review: Regularly evaluate your disability insurance needs as your business grows or changes significantly. Ensure your coverage stays relevant and sufficient.
Conclusion: What Changes Can You Make Today?
In today's unpredictable world, protecting yourself with disability insurance is essential for self-employed individuals. By securing an appropriate policy, you can stave off financial hardship during unfortunate times. From ensuring your income continues to covering unexpected medical expenses, disability insurance can lay the foundation for peace of mind. Schedule a call Here to explore your options and protect your future.
As a self-employed individual, your strength lies in your independence, but your safety lies in a solid financial plan. Start taking action today to safeguard your tomorrow!
About The Author
Marc Lowe is the Founder & President of In The Money Retirement Planning. He is a Certified Financial Planner and member of NAPFA National Association of Personal Financial Advisors, XY Planning Network & Fee-Only Network. He works with retirees and those approaching retirement. He has over a decade of experience helping these folks grow their net worth, organize their finances and build better lives for themselves and their families.
The information presented in this Presentation is the opinion of the author and does not reflect the views of any other person or entity unless specified. The information provided is believed to be reliable and obtained from reliable sources, but no liability is accepted for inaccuracies. The information provided is for informational purposes and should not be construed as advice. Advisory services offered through In The Money Retirement, an investment adviser registered with the state of Connecticut. The information linked to on third-party sites is being provided strictly as a courtesy and convenience. When you link to any of the web sites provided here, you are leaving this website. We make no representation as to the completeness or accuracy of information provided at these websites. When you access these websites, you are leaving our website and assume any and all responsibility and risk for use of the web sites you are visiting.The tax and estate planning information offered by the advisor is general in nature. It is provided for informational purposes only and should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.
Comments