Hi, I’m Ashlea and if you’re self-employed (or soon-to-be on your own), you probably really like the freedom and flexibility your entrepreneurial spirit has created. But, with great freedom comes great responsibility. And with that in mind, today we’re covering an important – but often overlooked – safety net for the self-employed: disability insurance. Why should the self-employed consider DI? Keep reading to find out just how this insurance can be a game-changer for your financial life.
Understanding Disability Insurance
What is Disability Insurance?
Disability insurance is the financial superhero: your knight in shining armour. Financial superhero: knight in shining armour. It swoops in to handle the problem just when you find yourself completely unprepared for calamity. Disability insurance provides you that financial parachute: the cash to soften the landing if life deals you a curveball. Say you’re out playing in a yard on a nice spring afternoon. In the blink of an eye, you turn an ankle and are falling without warning. Without a parachute, it’s a bone-crunching plummet!
Why is it Critical for Self-Employed Professionals?
You can set your own hours. You can choose your own projects. You can even do a Zoom meeting in your pyjamas. On the other hand – you don’t get sick leave or disability insurance – something a normal worker would take as part of the deal. This is where your silent, good friend that is disability insurance steps in.
You’re a freelance photographer, and your livelihood is taking stunning pictures of beautiful scenery. Then one day you trip and fall, and your leg takes a not-so-lovely new best friend in a rock. Now you’re homebound with your leg up in a cast and no chance to go out into the field again. Voila, enter disability insurance: while you’re unable to shoot pictures, your policy shoots a cheque from your insurer to pay your bills and keep your business alive.
It’s got nothing to do with replacing your take-home pay, and everything to do with keeping your business’s heart alive and its financial hemorrhaging at bay as you navigate your recovery process. It feels like having an invisible business partner not drinking your coffee but certainly helping to buy it.
When disability benefits replace the income you lose while you recover, you can remain focused on your recovery, not on financial ruin. So, while it’s true that your boss isn’t there to tell you what to do, it’s also true that you’ve got a guardian angel in the form of your disability benefits watching your back.
Key Benefits of Disability Insurance
1. Income Security
Say you are knee-deep in side projects from your freelance graphic design business, your creative juices flowing like an ozy Kentucky spring. Then, a calamity like a back injury rocks you like a maverick wave and declares intent to sink it all. Enter the lifeboat that is disability insurance, to keep you and your money afloat.
What this financial floatation device could do was to enable you to meet all your bills, manage your rent, and perhaps even afford that gourmet latte – without having to raid your rainy-day fund, or sell your favourite laptop. Your personal angel financial guardian steps in to help keep the world turning when you have to pause your work life, for better or worse.
2. Peace of Mind
And just as important is the mental game. Now you can sit back with a layer of ‘safe’. Disability insurance is the man who, when everything else goes wrong, tells you: ‘Hey, you know what? I got this. You just get better.’ You can relax and stop worrying if you’ll be evicted or lose everything.
This calm has a dual purpose: it is not only reassuring, but also emboldening. It detaches you from some of those pesky fears that can so easily take hold, and get in the way of recovery. By no longer worrying about this big ticket item, you are free to channel all of your resources towards healing, and refine your plans for your epic comeback.
3. Flexibility in Coverage
They know that you can’t be too big to fail: one size does not fit all. You might be a web developer who works feast or famine. You might be a consultant with a wildly variable income stream. That’s why disability insurance gets why yoga is so popular. Because it can flex to your needs.
You can select how long you are covered, how soon you earn eligible benefits after your injury (that’s the waiting period), and what percentage of earnings you earn out. Cover 60 per cent of earnings for three years with a one-month waiting period? Done. Or 50 per cent coverage that kicks in immediately and pays until you are up and running? Check.
And that flexibility means you can, in effect, order your own bespoke disability insurance policy – designed to your own particular specifications and budget. So, whether you want one that protects over the short term – like a car – or over the long term, such as a home expense, you get to design the safety net you want.
In effect, disability insurance means independence – time to heal, time to choose, time to allow the life and the business you love to thrive without compromise. Why not give yourself, your practice and your future, the wellness it deserves?
Choosing the Right Disability Insurance
Shopping for disability insurance is a bit like looking for a coffee: it depends on your palate, and what grind comes closest to working for your life. Here’s how to winnow the options into your perfect match.
Types of Disability Insurance
Short-term Disability Insurance:
Short-term disability insurance is for the ‘had to happen’. When you’ve tripped up and need a financial crutch for a few months at a time, like the awkward moment when you ruined your back in a freak dance move, or are recovering from surgery for a couple months, this is the insurance to have handy.
Long-term Disability Insurance:
On the other hand, long-term disability insurance is the marathon runner of the insurance world: an insurance policy that hangs around far longer, coming in once the health problem receives a more serious diagnosis and knocks you out of the race for a longer period of time. Whether for a chronic illness or for a more significant injury, this type of insurance covers the cracks for a few years up to the age of retirement. It acts as a financial lifeguard during the roughest of waters.
How to Choose the Best Plan?
1. Benefit Period:
First, consider how long you might want this type of support to last. Do you need to anchor your time on the shore for a time, or is this a journey that could last for years? The answer will determine if you take out short-term or long-term disability insurance.
2. Elimination Period:
This is the actuarial equivalent of waiting for your coffee to brew – the period between when something occurs and your benefits start paying out. Can you afford to weather this period: a month? Three months? Your savings and emergency funds are key to this question, so choose a deductible period where you won’t be left in the lurch.
3. Coverage Amount:
From another perspective, you can think about how much of your current income you need to replace if you can’t work: plans run a range, from about 50 per cent to 70 per cent. That is, rather like your morning coffee, you choose how strong you require it to be – strong enough to make it taste good, without it making it so bitter as to prevent you from sleeping at night.
4. Policy Definitions of Disability:
Look very carefully at just how each policy defines ‘disabled’: some are less generous than others, meaning payouts are triggered only if you can’t work at anything, and others will cover you if yo u can’t do your job. Because this makes a big difference as to when benefits kick in.
Picking the right disability insurance is about figuring out how to secure your immediate needs without cutting off your long-term opportunities. This is the precautionary analogy that seems to make sense to all of us: bringing an umbrella out on a cloudy day, in the hope of staying dry, but prepared for the worst, should the worst happen. A policy should be fit to your lifestyle and substantial enough to withstand a wide range of scenarios – keeping you safe and protected, no matter what. Take your time, shop around, and find something that you feel comfortable with, as the boilerplate disclaimer says: ‘all statements and opinions are that of the author and should not be construed as a guarantee’, but better be prepared.
Real-Life Application and Advice: A Tale of Two Self-Employed Friends
Think of two friends who both run small businesses – one is an independent graphic designer, the other a freelance writer, and they are chatting about their companies just as the dinner guests are arriving. They both love being self-employed. They love their work, they love being able to wear pyjamas all day, they love not having to cross town for crappy meetings, and the thought of being chained to an office desk scares them senseless. But when it comes to securing their financial futures, they diverge.
Emily’s Wise Decision
Because she knows from fellow self-employed friends that bad things happen to good people, and she doesn’t believe all the hype that she could successfully win a lawsuit if she ever fell ill (case in point), Emily invests in a long-term disability insurance plan. She sees this not as a cost, but as one of her business’s best strategies. Emily keeps the elimination period affordable while taking a benefit that will permit her to pay her larger bills and to dip into the business just a little in the event she can’t work at all.
Cut to a week out of the blue: Emily sprouts back pain. Unable to sit at her workstation, she begins to receive disability insurance payments after her initial waiting period. Now she can focus on rehabilitation instead of how she’ll pay her rent or buy her next meal.
John’s Hard Lesson
While John has always seen disability insurance as an impediment to keeping more money from passing through his business, fate decided to call his bluff. John and Emily have the unfortunate luck of suffering the same ailment. The exact same condition – nothing unusual about it. But when it hits John, no safety net is in place to catch him (mostly because John refused to prepare for the inevitable). His savings provide for his living expenses for a while, but with each passing month the funds drain away.
Unable to make ends meet, John does work even when he hasn’t fully recovered, leading to lowered quality of the work and, in some cases, lowered quality of health. Continued stress from financial pressure interferes with his recovery, and missed deadlines and quality of work starts to affect his reputation.
Learning from Their Experiences
But their story also illustrates the critical role of insurance — that, when unpredictable things happen, it is far better to have prepared in advance. Emily has the financial security and the psychological space to get better without rushing things in ways that harm her health or her professional reputation. John’s story is a tragedy.
And for the self-employed, disability insurance is not just about providing you with a safety net in case something goes awry. While it does that, it is also an investment in protecting your business and personal wellbeing – so that in the unlikely event that something unexpected happens you are ready for it, and that your financial security and success are not put at risk.
Advice to Take Home
If you’re self-employed, be sure to include disability insurance in your business blueprint. Weigh your income and lifestyle against your prospects of bouncing back from a couple of years or more out of the workplace. And don’t view this coverage solely in terms of paying your bills. You’ll have a better chance of returning to your career when you’re ready if you can maintain a decent standard of living in the meantime. And it’s wise to plan for such a contingency in advance, rather than waiting until after the accident or illness happens – as John did at his own peril. He eventually learned that some risks are too great to take.
Conclusion: Your Call to Action
Paying those ongoing premiums is not really ‘putting aside money in case you have future medical bills,’ it amounts to ‘saving’. And if your new job falls through for some reason, you’ll cherish having a permanent activity to fall back on – enabled by a disability policy. Don’t wait for the rainy day. You might consider your choice of career to be incredibility lucky, but that doesn’t mean you can leave everything up to luck. Weigh up your options. Call around. Get insured. And self-employed friends out there, take heed: play safe.
Want to learn more? Explore your options or talk with an advisor to find the right disability insurance plan for your needs. Protect your financial future. Peace of mind is an important business rule. Now go insure.