Working as a self-employed individual can provide you with an opportunity to take control of your income and create your own working schedule. On the other hand, even a minor injury or an illness could leave you with no income. Short-term disability, often standard for regular employees, can be as or more important if you are self-employed.
Short-term disability policies can be purchased directly from an insurance company and are designed to replace a portion of your income for a short amount of time if you become disabled. These policies typically provide benefits for as long as six months.
These policies will replace a portion of your income, typically 40 to 65 percent. Since income for self-employed individuals can vary, the amount you receive in benefits will be based on your average income just prior to when the disability occurred. Since you are paying for the premiums out of your own pocket, the benefits from this insurance are tax-free. This helps you get closer to your after-tax income.
Self-employed individuals may have a hard time getting access to short-term disability insurance. Regular employees can show paychecks as proof of regular income. Self-employed individuals are often paid sporadically and have a hard time tracking their incomes. They are also allowed many tax deductions that make regular income appear lower on tax returns. This may make it difficult to prove how much income would realistically need to be replaced.
When you apply for a short-term disability insurance policy with an insurance company, you may have to meet certain eligibility guidelines to qualify. You may have to have a separate business entity that you purchase your insurance through, and not just a sole proprietorship. If you run your business out of your home, the insurance company may require you to prove that you have a business. This might require a sign on the front of your home or having a separate space for your business activities.