Finding Private Disability Insurance for Freelance Writers

private disability insurance

One of the trickiest things about leaving your job to become a full-time web content writer is figuring out how you’ll replace all those cushy fringe benefits you had (or, hopefully had) at your last day job.  Health insurance is the obvious elephant in the room, but don’t forget about the other perks you enjoyed – specifically, life and disability insurance.

Depending on your financial situation, you might not need life insurance.  If you have a small amount of savings, no debt and no dependents, a life insurance policy may be overkill – as your unexpected death wouldn’t leave a financial burden for your loved ones.  (Sorry, there’s no way to be super cheerful when discussing insurance policies!)

Disability insurance, on the other hand, is more of a necessity than most people realize.  According to the Social Security Administration, just over 1 in 4 of today’s 20-year-olds will become disabled before they retire.

And lest you think your healthy lifestyle will keep you safe, be aware that a typical female who is 35 years old, 5’4” tall, 125 pounds, non-smoking, lives a generally healthy lifestyle, works an office job and has some outdoor physical responsibilities still has a 24% chance of becoming disabled for three months or longer during her career.  If she becomes disabled, she has a 38% chance that her disability would last five years or more, with the average duration of 82 months.

The statistics are about the same for a healthy male meeting these same criteria, and go downhill pretty quickly if you’re a smoker or have other lifestyle factors working against you.  Pretty scary stuff, right???

Disability can happen to anybody

There’s no sure-fire way to protect yourself from disability, but you can protect yourself financially.

Disability insurance first crossed my mind when my husband and I started thinking about trying for a family. As I am – and have always been – the primary breadwinner in my family – becoming disabled would leave a huge burden on my husband’s shoulders. Regardless of your circumstances, I think disability insurance is something all web content writers should consider – given that your ability to earn an income depends on your ability to continue cranking out the content.

My experiences getting my first private disability insurance policy is shared below, but please be aware that I’m not an agent or a financial advisor.  The process I describe may or may not work for you, but shouldn’t ever be construed as financial advice.

Step #1 – Find an agent

You know how it seems like everybody and their moms want to sell you term life insurance?  The opposite is true of disability insurance (probably because, given the statistics listed above, they tend to wind up paying out more often than insurers would like).  It can be incredibly difficult to find companies offering this type of policy (especially to freelancers, unfortunately), and even harder to weed out the disability insurance scams that are out there from the legitimate insurers.

For these reasons, I decided to work with an agent (shout out to M3 Insurance in Madison, WI!).  I was fortunate to meet representatives from this company when they gave an insurance presentation at a company I’d worked at previously, so I already knew where to start to get the ball rolling.  If you don’t already have an agent, search for commercial insurance agencies in your area and contact them to see if they offer private disability policies.  Even if the companies you contact don’t, they may be able to put you in touch with somebody who does.

Step #2 – Get a quote

Here’s where things get fun…

There are about a hundred different options that can be included in a disability policy, so get used to hearing words like “COLA” and “elimination period” thrown around.  Your agent will take some time to discuss your individual insurance priorities with you, but the following items were the most important criteria for me:

Insurance company

As you receive your disability insurance quotes, one of the most important things you’ll want to look into is the company that will be sponsoring the policy, as they aren’t created equal!  Visit the insurer’s website for information on their industry ratings (particularly those ratings that come from A.M. Best, Weiss Ratings or Standard & Poor’s) and run their name through the Better Business Bureau website.  While no insurance company is going to have a spotless consumer history, this simple check should help you to weed out the legit insurers from the disability scam artists.

Policy premium

Your policy premium is the amount of money you pay the insurance company for the privilege of having disability insurance.  Policies can typically be paid on a monthly, quarterly or yearly basis, though you’ll pay a little more to have your payments deducted each month.  Private disability insurance policies aren’t cheap, so it’s important to weigh your current income/expenses with the benefits you gain by having a policy in effect.

Benefit level

Your benefit level is the amount of money you’ll receive each month if you become disabled.  It’s typically based on your salary, although you’ll never receive a policy that covers 100% of your pre-disability income (if you become disabled, it’s expected that federal benefits will kick in part of your income as well).  Your benefit level is one of the biggest drivers in your policy’s cost.

Elimination period

The elimination period is the amount of time you’ll wait to receive your benefits after becoming disabled.  In different quotes I received, I saw everything from 30-day elimination periods to 5-year elimination periods.  The longer you can go without receiving benefits, the less expensive your policy will be; though you need to take your financial situation into account as well.  If waiting five years for your benefits will bankrupt you anyways, there’s no reason to buy a disability policy in the first place.

Benefit period

This refers to the amount of time you’ll receive benefits, should you become disabled.  Disability policies tend to come in two flavors – those that pay out for a short period (typically 2-5 years) and those that pay out until retirement (until age 65-67).  Longer policies are more expensive, but given the average duration of most disabilities, I think it’s a trade-off that makes sense in most cases.

Own-occupation coverage

As a writer, one of the most important criteria in choosing a disability policy was to find one that offers “own-occupation coverage.”  This means that, if I’m disabled, I’ll receive benefits for as long as I’m unable to work as a writer – not until I’m able to go back to any type of job.  Alternative policies – called “any-occupation coverage” – could dictate that I’m not well enough to work as a writer, but well enough for a fast-food job.  Since this wouldn’t be an ideal situation for me or my family, own-occupation coverage was a must for me.

Keep in mind, though, that own-occupation coverage isn’t available for everyone and that, in certain circumstances, it may be cost-prohibitive.  As a writer, you shouldn’t encounter this issue (though you may find that your costs will be higher as a freelancer than they will as a W2 employee). If you were trying to insure a partner who’s, say, a construction worker, you’ll find this type of disability insurance to be difficult to come by.

Residual benefits

It’s also important to remember that disability isn’t an “all or nothing” thing.  It’s just as possible that you’ll become partially disabled by an accident or other unfortunate circumstance that leaves you unable to work full-time.  Because of this, you need residual benefits, which pay out a certain percentage of your monthly benefit level, depending on how much of your pre-disability earnings you’ve lost.

Cost of living adjustments (COLA)

No matter what benefit level you choose, there’s a good chance that the amount you select now won’t go nearly as far 20-30 years down the road if you become permanently disabled.  For this reason, many disability insurance policies include a COLA waiver which increases your monthly benefit level according to predetermined formulas that ensure that your spending power goes as far in the future as it does when your policy goes into effect.

Those, in a nutshell, are the most important features of a disability policy, though you’ll likely find that any quote you receive includes other riders and benefits (such as lump sum payouts in certain situations, supplemental health benefits and more).  If you have questions on any of these other policy features, be sure to discuss what they mean and how you qualify for them with your agent.  This isn’t the time for guesswork and assumptions.

After several rounds of back-and-forth with my agent (who, I’m sure, was sick of hearing me say, “This looks great, but what would the premium amounts look like if we tweaked this number…”), I wound up with a policy through Principal Financial Services that includes:

  • A $2,000 monthly benefit level
  • A 90-day exclusion period
  • Benefits to age 65
  • Own-occupation coverage
  • Residual disability benefits that pay out if I lose as much as 20% of my earning power due to disability

For all of these different benefits, I paid around $62/month at the beginning, with the understanding that my premiums would rise by small increments as my benefit levels were adjusted in the future (I turned down the COLA rider I was offered in order to get the cost of the policy into the $50-75/month I had budgeted for disability insurance).

Now, this is by no means an ideal policy.  At $2,000/month, this policy would cover only a fraction of my current income. However, a top-of-the-line “Cadillac” policy would have run me between $200-300/month – an amount I’d rather put into a savings vehicle that will be available in other circumstances. I may try to improve the policy in the future, but for now, this compromise is a “good enough” solution that will cover my family’s major expenses without breaking the bank.

Step #3 – Complete a medical history exam

Once your paperwork has been submitted, you may be required to undergo a medical history exam to determine whether you qualify for the policy as stated or whether you’ll be faced with either a) extra restrictions or b) higher costs.

In my case, I was able to do this exam over the phone.  It took about 25 minutes and involved answering questions about everything from past medical care to current prescriptions and more.  The whole thing was pretty straightforward, and was much less painful than my life insurance exam (which involved a nurse coming to my house to draw blood – lame!).

After your exam, your answers are submitted to what I assume is a team of number-crunching accountants who determine your risk profile and report back their findings to your agent – who will let you know if you’ve been approved or denied.

About a week after the exam, I learned that I had been approved for the policy I’d selected, with the single exclusion that the policy wouldn’t cover any disabilities that resulted from my pregnancy at the time.  If I returned to work after that delivery and remain in my job for another three months, future pregnancies would be covered under the policy.

This part was a little frustrating, but understandable.  Part of the reason I pursued the process in the first place was that I’d read too many labor and deliver horror stories that wind up with the mother in a coma, so it was a little scary to know that these types of situations wouldn’t be covered for my family if they occurred (thankfully, they never did).  On the other hand, I completely understood the insurance company’s reticence to get into 30+ years of paying out benefits after I’d only paid in a few months of premiums.

The moral of the story – if you’re thinking about becoming pregnant in the future, consider starting the private disability insurance search process sooner, rather than later.

Step #4 – Sign your policy into effect

Once everything is said and done, the last steps are to sign your policy, pay your first month’s premium and set up ACH withdrawals for future months.  Again, this part is pretty simple – just bring your checkbook and your signing hand to your agent’s office, and you’ll walk out with disability insurance in effect.

However, there’s one last thing you should do – and that’s to familiarize yourself and your loved ones with what should happen and who should be notified if you do become disabled.  Keep this information handy, as the time to figure out who to call *isn’t* after you’ve been in an accident.

Other disability insurance alternatives

The process I described above assumes that you have no access to group disability insurance.  If you do, you’ll almost always find that it’s a cheaper alternative than seeking out your own private policy.

Traditionally, most group disability insurance is offered by employers, which you may no longer have access to if you’re freelancing full-time (though, if your partner is still working a benefits-eligible job, it’s worth checking into whether or not you’d qualify for dependent disability insurance through his or her policy).  Other groups that may (although rarely do) offer group disability insurance include workers unions, professional groups, alumni associations and other similar organizations.

If you’re a freelancer, you may want to look into the insurance options offered by the Freelancers Union.  Membership to this group is free and the disability policies they offer are cheap, though you’ll want to read the fine print on the coverage to make sure it meets your needs.

If you’re able to get in, my understanding is that the Writer’s Guild of America does offer group disability benefits as well.  However, I’ve found that the application criteria are pretty much impossible for web content writers to meet, so this has never been an option for me.  In addition, though the National Association of Female Executives hints that it offers group disability insurance on its website, it doesn’t – so don’t do like I did and pay for the premium membership!

Finally, some of you are probably saying, “But what about federal disability benefits?”  Yes, this is certainly an option should you become disabled, but it’s one that I hope I never have to rely on.  My understanding – both from web accounts and from acquaintances who have been through the system – is that qualifying for these benefits can be incredibly difficult in terms of restrictions and the time required to prove disability.

Even if you are approved for federal disability payouts, the benefits you receive won’t cover 100% of your pre-disability income, which is why I feel it’s best to protect yourself with a private policy.  Disability could have a tremendous financial impact on you and your loved ones, so don’t put off taking this important step.

Any questions about securing private disability insurance?  Ask them in the comments section below and I’ll do my best to answer:

Image: Flickr

Comments

Andrew
Reply

Wow

This post is gold for any entrepreneur

It deserves its own TED talk

Many thanks for taking the time and effort for this post Sarah

Sarah Russell
Reply

Thanks so much, Andrew! I’m glad to hear you found the post helpful 🙂

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