Disability insurance for startups

Startup life is high-risk, high-reward. Without the right financial protection, it can all come tumbling down.
Read Time
3 mins

Starting a business is a dream of many Americans. It offers freedom. It gives entrepreneurs the opportunity to build something from the ground up. With hard work, sacrifice, perseverance, and luck, it can make a person rich.

Those who join a startup as employees also have a unique opportunity to be part of something that grows. Startups typically offer more flexibility, more excitement, and more satisfaction than toiling for a large corporation.

What startups often don’t provide is a safety net for employees in the event an unforeseen injury or illness affects their ability to work.

That’s why, as a startup employee, you need disability insurance.

Startup employees need individual disability insurance because:

  • You took some risk to take your current job, either because you left a higher-paying corporate job or joined a startup straight out of college. You don’t want to add to that risk by not protecting your income against an injury or illness that prevents you from working.
  • According to the Social Security Administration, about 25 percent of 20-year-olds will become disabled at some point before reaching age 67.
  • The typical startup does not offer group disability insurance. Therefore, you will not have coverage in the event that an injury or illness limits or prevents you from working in your chosen profession.
  • Depending on how much schooling you went through, you may thousands of dollars of student loan debt. This debt will not be forgiven if you can't work due to a disability.
  • If you’re the business owner, you may have used much of your savings to start your company. And if you’re just starting your career, chances are you have not had much time to save money. Therefore, there may not be much left to support you if you have to miss work for several months or longer.
  • You’re probably earning less than you could for a more established company, which will make it hard to save money in the event of an emergency.

Below are what some startup employees, contractors and business owners can expect to pay in monthly premium for disability insurance:

  • A 25-year-old male software engineer for a startup making $70,000 in Cincinnati could get a $1,200 monthly benefit for about $12 a month, a $2,400 monthly benefit for $20, or a $3,630 monthly benefit for $28.
  • A 30-year-old female sales representative for a startup making $60,000 in Oklahoma City would pay about $27 a month for an $1,200 monthly benefit, $49 a month for a $2,300 benefit, and $71 for a $3,400 benefit.
  • A 35-year-old contract marketing specialist working for a startup and making $60,000 in Salt Lake City would be quoted about $18 a month for a $1,200 monthly benefit, $31 for a $2,300 monthly benefit, and $44 for a $3,400 monthly benefit.
  • A 40-year-old female startup business owner earning $90,000 in Charlotte, North Carolina would pay about $41 a month for a $1,600 monthly benefit, $77 for a $3,100 monthly benefit, and $112 for a $4,560 monthly benefit.

These quotes assume a five-year benefit period and a 90-day waiting period.

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Your monthly disability insurance premium will depend on the following factors:

  • Your age and health. The younger and healthier you are, the less you will pay.
  • Your income. Disability insurance is designed to replace a percentage of your income if an injury or illness limits your ability to work in your profession.
  • Where you live.
  • The benefits and features of your disability insurance policy.
  • The industry you work in.
  • Your job responsibilities, including how much you travel for work.

Disability insurance companies group jobs into specific occupational classes. These classes take into account the hazards of the job and the difficulty in returning to work following a disability. Another factor is the claim experience associated with certain professions.

Insurance companies generally classify occupations on a scale of 1 to 5 or 6. Typically, the higher the numerical value of the classification the lower the rate available from the insurance company.

In general, if the startup you work for is a white-collar industry, you will likely have an occupation rating in the upper half of the insurer’s rating classes.

For examples, some insurers have a classification for office workers. Lower-earning workers may be rated a 3 out of 5 classes or a 4 out of 6. Higher-paying managers and executives are often rated in the highest classes, either a 5 or 6.

Sales representatives are typically rated 4 or 5, depending on the employee’s salary. The same is true for those in marketing and advertising. Accountants and IT professionals can be rated anywhere from a 3 to a 6 based on education, salary and the insurance company.

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