Why should you consider getting disability insurance?
A lot of people who work for themselves choose to take out disability insurance. It could be of benefit to you if your income suffers due to becoming disabled in some way. Disability policies are often worked out as part of a wider health insurance plan but you can also purchase individual disability insurance if you think that might be of greater benefit in your circumstances.
Disability insurance is designed for both employees who earn a fixed salary and people who employ themselves. Of course, nearly everyone who contracts a serious illness in the UK which prevents them from working should be able to claim state benefits so long as they have paid their monthly National Insurance contributions. However, this won’t cover all of the loss of income that otherwise healthy people usually find they suffer if they become disabled. There are various disability insurance products on offer which provide coverage in such situations. Why might you choose a disability insurance policy?
The benefits of being insured for disability
As a person who runs their own business, there is no benefit period you can expect from an employer like an employee would reasonably expect. Most employees contracts state what payments they can expect if they have to go off work for a long-term period. This sort of coverage might help if you get an injury while working and means you can keep up your mortgage payments even if you cannot work temporarily.
Disability insurance affords self-employed people with the same sorts of benefits. Firstly, you can expect to receive financial coverage in the event you contract a serious illness. Secondly, you will receive living expenses in the event that you suffer a disability that impairs your ability to earn. People who work for themselves have the same right to claim the government’s usual disability benefits, of course. However, disability benefits, such as Personal Independence Payments and Disability Living Allowance, won’t necessarily meet all of your usual income. You can think of it like private health insurance which goes over and above the level of insurance the state affords you already. As such, it is worth considering buying by everyone who does not have an employer.
How does disability insurance work?
Generally speaking, the younger and healthier you are, the lower the cost of the premiums you will need to pay for disability insurance. In this way, it works much like life insurance. The premiums with each tend to go up according to the more risk you represent to the insurer. Older people and people who have pre-existing conditions may, therefore, face higher premiums for the benefit amount they would receive if they subsequently needed to make a claim. In addition, the cost may be more if you take into account work-related risks. If you work on an oil rig, for example, then your disability insurance plan might cost a bit more than if you worked behind a desk in your own home.
Despite the costs, remember that disability insurance operates in a marketplace like every other type of insurance policy. Therefore, you should shop around different disability plans before you get out your credit card and start paying. In most cases, there is an annual fixed fee to pay to get disability coverage. Policyholders can usually arrange to settle this bill with a monthly direct debit.
Making a claim on disability insurance
Because long-term disability insurance is usually sold alongside critical illness cover, you should make a claim if you have become disabled or contracted a life-altering condition that means you cannot work as you used to be able to. Of course, any injury that has come about because of self-inflicting something on yourself deliberately would constitute a fraud. Nonetheless, accidental injuries come under the auspices of most types of coverage. You should always check what conditions and disabilities your insurance covers before taking it out, however. You don’t want to find out the coverage lacks in some key area only after you make a claim so you don’t benefit from it in the end, after all.
Bear in mind that some policies only relate to long-term disability insurance. Essentially, long-term disability insurance differs from short-term disability insurance because the latter relates to a condition from which you might recover. For example, if you suffered an injury like a broken leg that prevented you from working for a month or two, then you’d need short-term disability insurance. Eventually, you’d expect your income to rise as you return to work. On the other hand, long-term disability insurance generally provides salary coverage when you don’t expect to recover. Long-term degenerative diseases, as well as things like head injuries, might fall into this category. That said, things like work-related stress and some mental health conditions are often not covered. This does vary from policy to policy, however.
Disability insurance and tax
An employed person who benefits from their employer contributions to an insurance plan that covers disability must declare this as a benefit on their tax return. As such, it is not considered a tax-free benefit. Those who pay for it themselves from self-employment will usually do so only after-tax deductions. Like life insurance, disability insurance will usually pay out for medical expenses as a tax-free lump sum.