What Freelancers Should Consider When Buying Long Term Disability Insurance

According to data from the Bureau of Labor Statistics, nearly 3 out of 5 white-collar workers in the private sector participate in a long-term disability insurance plan through the company where they work. By comparison, freelancers are often on their own when it comes to deciding whether to purchase long term disability insurance and deciding which plan is right for them.

During the month of January, I answer freelance questions about retirement planning. In previous installments we’ve heard from Julia, who was wondering how to start saving for retirement while living from paycheck to paycheck, and Anna, who needed to know what to do with her retirement savings after maximizing. his Roth IRA. Today we’re going to answer a question from Lydia, who is considering purchasing insurance in case she needs to retire early due to disability.

From what I’ve heard about early retirement due to disability, it sounds like disability insurance Absolutely logic. But I just had such a hard time finding someone who would sell it to me on reasonable (or just non-opaque) terms.

What kind of insurance does it even make sense for me to try to get in the first place? How can I find providers who are ready to cover me at a reasonable rate once I have determined what insurance I should be trying to get? And how can I make heads or tails of politicians once I find them? – Lydia, 35, editor

Lydia, you are right to think about long term disability insurance as a freelance writer. On 30% of workers will be disabled for six months or more prior to retirement. Many long-term disability insurance plans, but not all, offer benefits that will last until you reach retirement age if you are faced with a permanent disability.

While most people with long term disability insurance will never need to make a claim, these policies cover hard-to-plan events with only savings. Long term disability insurance policies replace part of your income if you are unable to work due to illness or injury for an extended period.

It is much easier to build a three to six month emergency fund than to build a nest egg that would cover our expenses if we could not work for several years. I should mention that long term disability insurance plans are often relatively expensive (according to Paul Sullivan’s report to the New York Times, the average cost of a policy is around 3.5% of your income, which is roughly what I found when I recently researched quotes for myself) – but they do offer protection against low probability events that can cause a lot of financial hardship.

When I was considering disability insurance, I would start by taking a look at my checking and savings accounts and seeing how many months of my essential expenses I could cover with my existing assets after reaching the maximum amount for my health. insurance plan. After all, if you have a new injury or illness that prevents you from working for an extended period of time, chances are you will have to pay a lot of medical bills as well. For example, if my essential monthly expenses were $ 3,000 and my maximum insurance policy amount was $ 8,000 and I have cash savings of $ 30,000, I might choose a waiting period. 6 months (see illustration below).

When you shop around, you’ll find disability insurance policies that take effect after waiting periods as short as 30 days, 60 days, or 90 days, or as long as 6 months or a full year of disability. Choosing a plan with a longer waiting period will significantly reduce your monthly premiums.

You should know that when you file a disability claim, a doctor and the insurance company will work together to answer two questions: Can you continue to perform your current duties? And could you perform the tasks of other professions? If you purchase a policy that includes “Own occupation” coverage (which is more expensive), you will be covered as long as you can no longer perform your current duties, even if there are other jobs you may perform. Otherwise, you will only receive benefits if you are unable to work in general, regardless of occupation. For a writer, the clearest example of where “own occupation” benefits can come into play is if you are diagnosed with carpal tunnel syndrome or other forms of nerve damage that prevent you from typing, but where you would still be able to do other types of work. If you earn a high enough income (eg, over $ 60,000 per year), I would strongly consider “own occupation” coverage, to protect you financially if you cannot continue your current professional activities, but are still considered. able to do other forms of work. If you earn less income, own occupation coverage is comparatively less important, as being forced by a disability to change jobs would be less likely to result in a significant loss of income. And in general, “own occupation” coverage is less important if your job does not come with a large number of specific physical tasks that you must accomplish.

I must mention that there are many prolific and talented writers and publishers within the disabled community. The fact that journalism can be an accommodating career path for many workers with disabilities means you should look for a plan that offers “Residual disability” coverage, which means that it will cover loss of income resulting from a disability that does not prevent you from working completely, but reduces the amount of work you are able to do. Nicholas Mancuso, Senior Director of Disability and Advanced Planning Team Operations at Political genius, remarked to me over the phone that a prime example of partial disability is a cancer patient who suffers from “extreme fatigue during chemotherapy”. In this example, if a doctor concluded that you could still work a few hours per week, your loss of income would only be covered if you had chosen a plan with residual disability coverage.

Personally, I would only buy an insurance policy that has been considered not cancellable, which means that the insurance company cannot cancel your policy while you are paying premiums; Otherwise, if your health deteriorates with age, there is a risk that your insurer will decide not to maintain your coverage or to increase your premiums.

Now that we’ve covered what to look for in a plan, let’s talk about how to shop and compare your options. You have probably met Disability insurance from the Union des Independants offer, the price of which is attractive. On the other hand, their website is not transparent about the terms of the policy and they did not respond to my requests for comment, so it is not clear if the policy they are offering offers a level. appropriate coverage.

I highly recommend that you work with an insurance broker, who can arrange for you to review “apples-for-apples” quotes from several insurance companies, to see how the price compares to different carriers when terms of the contract are identical. Mancuso says that when it comes to protecting your financial future, always choose “the contract over the carrier.” This means that you have to choose a contract with strong characteristics, rather than focusing on the brand of the carrier. Insurance brokers earn a commission when you buy an insurance policy, but they have a “fiduciary” obligation to you as the purchaser of insurance: By law, they’re supposed to work in your best interests and shouldn’t steer you into bad policy to earn a bigger bribe. A “broker”, as opposed to an agent, will not work for a single company like State Farm or Northwestern Mutual, but will help you find a range of options. Political genius is an insurance broker that operates online, and I think their website and application process are particularly good at helping consumers understand key contract terms and understand how adding or removing policy features will change the cost of insurance premiums. If you prefer to sit down and talk with a broker in person, which can be especially helpful if you plan to add or change multiple types of insurance, I would start by looking at Yelp in your area: Insurance brokers are often small businesses with a single office, rather than national chains.

The information provided above is for educational purposes only. It may not apply directly to your situation and should not be construed as financial advice. For financial, investment or tax advice, please consult a professional. You can ask a question about freelance retirement here for exam.

About Antoine L. Cassell

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