However, working freelance or as an independent contractor also has a few downsides. While you might not have to fight traffic to spend the day sitting under a fluorescent light in an airless cubicle, you also don’t get a typical payday — or even always know how much you’re earning each month. Not to mention, you probably aren’t getting the same benefits as a full-time employee.
Since you are probably already paying for health insurance — and perhaps even insurance for your business, your home and your car, you may be reluctant to incur the cost of yet another form of coverage, especially since you don’t have any employer subsidies. However, despite the costs, it’s vitally important that, as a freelancer, you carry disability insurance.
Protecting Your Livelihood
As a freelancer, it’s probably difficult to imagine that you will ever become disabled and unable to work. You might be thinking, “I’m a writer! I can always do that!” But imagine that you become so ill that you cannot get out of bed for days at a time, never mind conduct interviews and research and craft compelling prose. Or maybe you have an accident that limits the use of your arms, or requires you to lie flat on your back to heal. It might sound unlikely, but it does happen — and it can happen to anyone.
Disability insurance is essentially coverage for your earning power. It protects your income in the event that you can no longer work due to illness or injury, by paying you 50-60 percent of your monthly salary until you can go back to work, or qualify for long-term disability under Social Security. If something happens that prevents you from working, you can file a claim (you may need to get help from a disability insurance attorney, like those found at disabilityinsurancelawyers.com to ensure that your claim is handled properly and not denied inappropriately) and begin receiving payments that will keep you on top of your expenses until you can work again.
So why is this so important for freelancers? When you work in a traditional job and become sick or injured, there are multiple laws in place that prevent employers from firing, laying off, reducing hours or changing the job description of the sick or injured employee. Freelancers do not enjoy the same protections. As an independent contractor, in most cases, if you cannot complete an assignment, a client will simply find someone else who can — and you may not have assignments to come back to when you’re finally able to work.
In addition, many employees are automatically covered under their employer’s disability insurance program — and may not even realize it. At the very least, most mid to large-size companies offer employees the option of purchasing insurance for very little cost. Again, freelancers don’t have that same safety net, meaning that they need to create one of their own.
Buying Your Own Disability Insurance
Finding a disability insurance policy can seem intimidating, but most freelancers choose to work with their existing insurance agents or financial planners, or purchase coverage through a professional association or industry group, which may be able to leverage its buying power into a better rate.
Freelancers need to take a few important points into consideration when choosing a policy. First, “own occupation” coverage is best. This type of insurance covers you if you can no longer perform your own occupation, regardless of whether you can work in other occupations. Second, be sure that the policy covers disabilities that are common within your industry or type of work. For example, many writers or data entry clerks develop disabling carpal tunnel syndrome. If your disability insurance excludes claims stemming from CTS, then it isn’t the right one for you.
In addition, it’s vitally important to choose a policy that covers self-employment income, as not all do. And of course, as with any policy, be sure to look at the elimination period (how long you must be disabled before you qualify for benefits), how long the policy pays benefits and how the carrier defines disability.
Protecting your freelance income against an unexpected and debilitating illness or injury is smart financial planning. Even if you are young and healthy, that could change tomorrow, so make a smart decision today.