I am Self-Employed in New York – Do I Qualify for Disability Insurance?

When you are self-employed, you have to take care of all the things an employer would handle for you. You set up your own retirement account and buy your health insurance. Do not forget to cover yourself with insurance in case you end up with a disability that keeps you from working. If you are self-employed in New York and are wondering about whether you qualify for disability insurance, you should talk with a disability insurance lawyer.

Social Security Disability Insurance

If you pay your self-employment taxes, you are eligible for Social Security disability benefits. The catch here is that some self-employed people take so many business deductions that they do not claim any profits. While this strategy will save you lots of money on your self-employment and income taxes, if you do not pay into the Social Security Administration (SSA) system, you will not accumulate enough work credits to qualify for Social Security disability insurance (SSDI) benefits, Medicare, or retirement benefits. Just like any other type of insurance, if you do not pay your SSDI premiums, you cannot collect on the insurance.
You pay SSDI premiums through your self-employment taxes. If you were employed, your boss would withhold part of your paycheck and add the employer matching contribution to pay your Social Security responsibility. As a self-employed person, it falls on your shoulders to do your tax and other withholdings, including Social Security.

Private Disability Insurance for the Self-Employed

If you have not paid into the Social Security system enough to qualify for SSDI benefits, you have other options to protect yourself. You can buy private disability insurance. In fact, you can purchase private disability insurance in addition to paying for SSDI. Some people call this coverage “income replacement insurance.”
Many people choose to buy private disability insurance because SSDI does not pay much in benefits, and it takes a long time to go through the evaluation process. The SSA denies the vast majority of SSDI claims. You must be unable to do any kind of work at all to qualify for SSDI benefits. Private disability insurance tends to be less harsh in the evaluation process and to pay higher benefits.
Because the premiums are high, many people forego short-term disability insurance, planning to rely on their savings if they are unable to work for a few months. They buy long-term disability insurance, which kicks in around three to six months after the onset of your injury or illness. Long-term disability insurance generally costs between one and three percent of your income. It will pay you a portion of your previous income, usually around two-thirds of your typical paycheck.

How Social Security Evaluates SSDI Claims of Self-Employed People

When the SSA evaluates SSDI claims of employed people, they use an income test. If the claimant makes over the monthly income limit the SSA set for that year, the person does not qualify for SSDI benefits. Employers do not just give away paychecks to be nice. A person has to be contributing something of value to the business to get paid. If you are capable of this activity, which the SSA calls substantial gainful activity, they do not consider you disabled.
The SSA realizes that a self-employed person, however, might still receive income after sustaining a disabling injury or illness, without being able to work. Your capital investment and profit-sharing agreements may entitle you to continue receiving an income stream while disabled, so the income test is not appropriate for self-employed people. The SSA will evaluate instead the value of your work activities to the business instead of a simple income test, to determine if you are engaged in a substantial gainful activity.
Disability insurance and law are complicated, and the SSA and private insurers will try to find reasons to deny your claim for benefits. To protect your rights, you should talk with an experienced New York disability insurance attorney, call us to arrange a free consultation.