Short-Term Disability for Freelancers: A Beginner’s Guide
March 5, 2019
Today, you’re working for yourself and absolutely killing it. But some day you may be faced with a disabling injury or illness that impairs your ability to work. Bills will keep coming, but you won’t be earning. You can dip into your emergency fund if you have one. Otherwise, you may consider short-term disability insurance, which will replace a portion of your income while you recover.
We’ve looked around and basic info about short-term disability insurance for the self-employed is all over the place and a bit unclear. The chances of becoming disabled vary greatly, there’s no such thing as a typical premium rate, and you can’t view your options as a freelancer in one easy place. So, we wrote an FAQ-style guide in the plainest possible English. It’s short and to the point, and should save you some time.
FAQs about short-term disability for freelancers
- What’s short-term disability insurance?
- Is this kind of insurance worth it?
- Where can freelancers get short-term disability insurance?
- How much does it cost?
- Is there a difference between short-term and long-term disability?
- What’s the waiting period for short-term disability?
Short-term disability insurance replaces a chunk of your earnings when you’re not able to work and get paid. Such scenarios include breaking a limb, getting bronchitis, or—and this is one of the most common scenarios—getting pregnant, and taking time off, otherwise known as maternity leave.
What are the chances that you’ll be disabled and unable to work? It’s hard to say, really. Short-term disability stats vary greatly, and most of them are produced by insurance companies themselves.
So, let’s try this from a financial perspective. If you can’t work, and don’t get paid for few months, you may tap into your emergency fund to pay for bills, rent, and your whole quality of life. But, most freelancers don’t have an emergency fund. About 63% of freelancers report that, financially speaking, “they’re just getting by.” Only 37% say they can handle a major unexpected expense.
Short term-disability insurance will provide a “steady paycheck” while you’re not working, based on a percentage of your usual income.
Because there’s a lot of misinformation swirling around on the web, here’s some options you can rule out:
- Social security. They cover long-term disability, but not short-term disability.
- Your spouse’s short-term disability insurance. Typically, your spouse’s short-disability benefits only cover the insured person.
And, here are your actual options:
- Call an insurance agent to purchase an individual plan. Sole proprietors and freelancers can purchase coverage without going through an employer.
- Buy insurance through a professional association that offers coverage at group rates.
- Trupo, from the founder of Freelancers Union, is short-term disability insurance designed for freelancers. They’ve just launched in Georgia, and are planning a national roll-out.
- Some states (California, New York, New Jersey, Rhode Island, and Hawaii) provide paid disability leave.
- Self-employed with a 1099? Some businesses provide this benefit.
The cost of your premium depends on a lot of factors, including your age, your health, and your occupation. Trupo suggests most workers will pay between $27-51 per month.
Insurance companies will also factor in the waiting period, aka how soon you need coverage to kick in. In general, the shorter the period, the higher the premium.
The short-term coverage period begins at about 6 weeks to about three to six months, while the long-term period is about two, five, or ten years, or until retirement. Typically, short-term disability insurance and long-term disability insurance are offered together.
According to the Bureau of Labor Statistics, the median short-term disability insurance covers 60% of lost income, and its the same for long-term. Short-term pays out for a much less time, while long-term will cover you until your disability ends.
You will start receiving payouts from short-term disability insurance after a waiting period, and this time will depend on a few factors, such as whether the disabling event is an illness or an injury. Waiting periods are usually 0 to 14 days after becoming sick or disabled.
This article is being provided for informational purposes only and should not be viewed as a recommendation of any product, service or strategy referenced.