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Income Protection Insurance for the Self-Employed

The point of long-term disability insurance is to replace your income if you’re disabled and unable to work for an extended period of time — maybe a few years or maybe until you qualify for retirement benefits at age 65. 

If you’re self-employed like I am likely you know just how much the flu or even a short-term injury can result in a financial set back. Being ‘out of the game for even a short period of time, has a direct impact on your bottom line. As the boss, you have no sick leave to fall back on. That means that were an extended illness or serious injury could well mean a loss your business and possibly even your personal assets as well. Not a pretty picture.

This risk means it might be time to investigate the purchase of long-term disability insurance. Buyer beware, according to a recent Reuters article, long-term disability insurance is far more difficult to underwrite for the self-employed. Obviously, the purpose of long-term disability insurance is to replace income is lost due to incapacitated over a protracted period until age 65, when social security and other pension plans can be tapped. The problem with this insurance for the self-employed however, is with their ability to document their income especially if you, like many of the self-employed, do not pay yourself a consistent salary.

The insurance will pay out in accordance with what it thinks you actually live on, your gross minus your business expenses (roughly what you pay income taxes on), but that just might mean cutting out necessary business costs (like licenses). Although extra protection can be purchased, there is the extra expense to consider.

If you are a freelancer or work on commission, you’ll also to provide prove of income to the insurance underwriter. Problems with the inability to document your actual income will result in an inaccurate assessment of that income and would well result an inflated premium expense. Just as likely given the lack of ability to pin down exact income, the insurance company simply may elect not to offer coverage.

As this is an important issue for any entrepreneur, the original article is well work reading as that you can plan accordingly.

Reference: Reuters (August 16, 2011) “Self-employed? How to find disability insurance

The insurance will pay out in accordance with what it thinks you actually live on, your gross minus your business expenses (roughly what you pay income taxes on), but that just might mean cutting out necessary business costs (like licenses). Although extra protection can be purchased, there is the extra expense to consider.

If you  freelance or work on commission, you’ll also have to prove income to the insurance underwriter. Problems with the inability to document your actual income will result in an inaccurate assessment of that income and would well result an inflated premium expense. Just as likely given the lack of ability to pin down exact income, the insurance company simply may elect not to offer coverage.

As this is an important issue for any entrepreneur, the original article is well work reading as that you can plan accordingly.

Reference: Reuters (August 16, 2011) “Self-employed? How to find disability insurance

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