Disability insurance for the self-employed
Enter your net profit, the monthly benefit and the premium on your quote. The calculator compares the tax-free benefit with what you keep from your profit today.
Example, not your result yet· change a figure to see yours
Benefit as a share of your profit
60%
$4,000 a month, tax-free, against $5,936 a month of profit after income tax
| Premium as a share of profit | 2.3% |
| Taxable benefit that would equal it | $4,340 |
| Premiums over 10 years | $18,000 |
| Months of benefit that repay 10 years | 5 |
Profit after federal income tax with the standard deduction, no credit; self-employment tax and state tax are not subtracted. A benefit bought with your own money is tax-free (IRS Pub. 525).
Compiled by Radif Partners · How the figures are built · IRS rules and BLS plan data read November 7, 2026
A self-employed person has no group plan, no sick pay and no employer premium, so a disability stops the business income at once. An individual disability income policy paid with after-tax money pays its benefit tax-free: IRS Publication 525 says amounts received from a plan whose entire cost you paid are not income. A $4,500 monthly benefit therefore replaces $4,500 of spending money; a taxable benefit would have to be about $4,908 to leave the same amount for a single filer in 2026. Against a net profit of $90,000, which leaves about $6,586 a month after federal income tax, that benefit replaces most of the household's money. A policy at $160 a month costs 2.1% of profit. Business owners often add business overhead expense coverage, which pays the fixed costs of the business while the owner cannot work and is a separate contract.
Why the self-employed are exposed
An employee who falls ill keeps a paycheck for a while: sick days, perhaps a short-term disability plan, then long-term disability for 37% of private workers (BLS, March 2026). A freelancer, a consultant or a sole proprietor has none of that. When work stops, invoices stop, and the business costs keep running. The only income protection is the one you buy, which makes its terms and its tax rule worth reading closely.
The tax advantage of paying yourself
IRS Publication 525 is clear: if you pay the entire cost of an accident or health plan, the amounts you receive for personal injury or sickness are not income. For an individual disability income policy paid from your own after-tax money, the benefit arrives untaxed. The calculator uses that rule: the benefit is compared with your profit after federal income tax, and the second line shows the taxable benefit that would leave the same amount, $4,908 for $4,500 in the example. If your company pays the premium for you as an employee benefit and deducts it, the result changes: the benefit can become taxable, as with any employer-paid plan.
Your benefit against your profit
Example, not your result yet· change a figure to see yours
Benefit as a share of your profit
60%
| Premium as a share of profit | 2.3% |
| Taxable benefit that would equal it | $4,340 |
| Premiums over 10 years | $18,000 |
| Months of benefit that repay 10 years | 5 |
Sizing the benefit
Start from the money the household needs each month, not from profit: the needs calculator converts a budget into a benefit. Then check it against the insurer's view: underwriters look at earned income on your returns over the last years and issue a benefit that leaves you with less than working would. Volatile income means a lower figure than a good year suggests. If profit is rising, a future increase option lets you raise the benefit later without new health questions.
Terms that matter more without an employer
The definition of disability decides whether you can keep running part of the business while on claim. An own-occupation contract pays if you cannot do your own work, even if you manage the company or work in another field; a residual benefit pays a share when your income falls because you can only work part of the time, which is the common case for business owners. The elimination period has to be carried by savings, with no sick pay to bridge it. The cost page measures each quote.
Health and long-term care premiums are another matter
The self-employed health insurance deduction, figured on Form 7206, covers medical and dental insurance and qualified long-term care premiums, these last within the 2026 age limits of Revenue Procedure 2025-32, and never more than the net profit of the business. A disability income policy is not health insurance for this purpose. The long-term care deduction calculator has a self-employed option.
Business overhead expense coverage
A disability income policy replaces your own income. A business overhead expense policy pays the fixed costs of the business, rent, utilities, employees' salaries, while you cannot work, usually for one or two years, so that there is a business to return to. The two are often sold together. Their tax rules differ, and an accountant should look at how the overhead policy is paid and reported.