Best Disability Insurance For Nannies [Guide: Learn Your Options & Protect Your Family]

Updated: April 12, 2024 at 9:39 am

disability insurance for nanniesI know nannies don’t wake up in the morning and think, “Today would be a good day to buy some disability insurance.”

Your occupation is very busy, and you have a lot going on. You may not have time to think. Your work can be tough, though. However, you enjoy working with children.

Moreover, you feel part of the family!  You have taught the children age-appropriate skills and watched them grow. I’m sure you love your job and are satisfied with the positive impact you have made.

What if you could no longer do that job? Have you ever thought about what would happen if you became sick, ill, injured, and disabled?

How would you pay the bills if you could not work? A disability quickly affects the lifestyle you worked so hard for and your future. In this article, we discuss disability insurance and the best disability insurance for nannies.

to show benefits of disability insurance for nanniesWhy Nannies Need Disability Insurance

Disability insurance provides a cash benefit to you when you can’t work in your job as a nanny. So, if you are diagnosed with a debilitating illness, injured, or sick and can’t do your job, that’s a disability. The plan pays a benefit. How great is that?

Many people ask us if they need disability insurance. Answer this question for me:

Will you struggle to pay the bills (your rent, mortgage, groceries, utilities, etc) if you are disabled and can’t work?

If the answer is “yes”, you need disability insurance.

Sometimes, you have to think beyond yourself. Your families are very important. There is also a group of people who are more important, though. Who can be more important than the children and families I care for, you think. They pay my income and appreciate the work I do.

True. They do, but they don’t love you as your own family loves you. By far, if you have a family, your spouse and your own children rely on you more than you think. They love you more than anything.

Can You Answer The Tough Questions?

There are tough questions that need answering.

  • Would you and your family be able to continue your standard of living without your income? If not, what changes would need to be made?
  • Would your spouse have to work or work more?
  • Would you need to sell your home to make ends meet?
  • Who could be flexible with the children (i.e. your kids)?
  • Would you have the money to hire someone to take care of the kids?

The tough questions can go on and on.

Disability is known as the destroyer of dreams. Your future and family dreams could be destroyed. They don’t have to, though. With disability insurance, you have peace of mind knowing that you have a plan – and income – in place should the unexpected happen.

Yes, But A Disability Won’t Happen To Me

You think it won’t. It happens to the other person, right?

However, the probability of having a long-term disability is anywhere between 1 in 3 and 1 in 4 workers. Contrast this to unexpected death, say from a motor vehicle accident, which is 1 in 114. Even dying from cancer has better odds: 1 in 7.

But, John, I’m not going to get hurt or be in a wheelchair, you say. Wow! I respond. If you know that, then you should not be a nanny. You need to play the lottery! You won’t have to worry about income at all!

In all seriousness, when we think of disability, we think of someone bound in a wheelchair, right? Not true and far from it. According to the Council For Disability Awareness, 90% of disabilities are from illnesses (like cancer) than from accidents. That means an illness or condition, such as cancer or a heart condition, has a higher probability of disabling you than a skiing accident.

Ok, John, but I have workers compensation. I don’t need to worry about money. That’s great, I say. Did you know that 5% of disabling conditions are work-related, leaving the other 95% not covered by workers compensation? That makes sense, since 90% of disabilities are from illnesses.

Again, what is your income plan if you can’t work?

Disability Insurance Underwriting For Nannies

OK, John, you make great points! How do I apply?

Well, before you apply let’s discuss underwriting.

Disability insurance underwriting for nannies consists of 4 areas:

  • age
  • income
  • health conditions
  • occupation

Your age and income are straightforward. The older you are, the higher the premium. The more money you make, the higher the benefit, and the higher the premium. Of course, all things being equal. Don’t worry about premiums, though. We will discuss premiums later. However, premiums should not be the deciding factor. Protecting your family is. Disability insurance is easily customizable to a budget.

The income depends on your employment situation. If you are an employee, your income is your W-2 salary. However, if you are a self-employed nanny, the income is your net income. Net income is your gross sales minus your business deductions. You can find your net income in your tax returns. Typically, carriers like to see the last 2 or 3 years of income. It’s a good practice to have those on hand during the application process.

Let’s talk about health conditions and your occupation next. Those are a little more involved.

Why Health Conditions Matter?

To get to the point, carriers typically exclude any pre-existing injuries and illnesses from coverage. For example, if you broke your arm 5 years ago, that broken arm might be excluded from coverage. If you had complications of pregnancy, then any future pregnancy complications aren’t covered.

While this might seem unfair, remember the carrier insures you for your potential disability. Any injury or illness can lead to a long-term disability. So, carriers typically exclude any current or previous injuries and illnesses.

If you have a serious health condition, likely the carrier applies a rating. A rating is an increased premium, which compensates for an increased probability of disability. Additionally, carriers may limit benefit periods and waiting periods to compensate for increased disability risk.

to show why nannies need disability insuranceWhy Your Occupation Matters?

What you may not know is that your occupation matters, too. Most carriers will not cover high-risk professions for the simple reason of an increased probability of disability. Carriers classify the risk from a scale of 1 to 5. The lower the number, the riskier the occupation, and the higher the premium, all things being equal. Nannies are typically classified as a 2 or 2A. Sometimes, classification upgrades are available if other favorable conditions are met, such as good health.

So, why a class 2 for nannies? Well, there is an increased risk of disability due to your occupation. You aren’t simply sitting in an office as an accountant does.

No worries, though, we at My Family Life Insurance have the experience and know-how to construct a comprehensive plan that won’t break the bank.

The Makings Of A Solid Disability Insurance Policy For Nannies

Our primary goal when developing a disability insurance plan for nannies is the right combination of value and premium for you. A disability insurance plan can be as cheap or expensive as you want it to be.

However, in our opinion, there are some “non-negotiables” provisions for nannies.

The first is, at minimum, to have a modified own-occupation definition. The own-occupation definition means the carrier pays a benefit to you IF you can’t perform the duties of your own occupation as a nanny. They will still pay a benefit even if you can work elsewhere in a different job. Luckily, many carriers make this definition of disability available.

A second “non-negotiable” is partial benefits. You’ll want this. All this means is that the carriers pay you a partial benefit if you can work, but just not full-time. Many carriers offer this, but they have a stringent definition. We work with carriers that offer an easier definition for nannies.

Finally, a guaranteed purchase option is a key component of a disability insurance policy. It allows you to purchase more disability insurance, as your income increases, without any evidence of insurability. In other words, you just fill out a form for an increase in benefits.

Disability Insurance Basics For Nannies

After the “non-negotiables”, a disability insurance policy can be structured in any way possible.

There are several definitions and provisions you’ll need to understand about disability insurance to make an informed decision. All of these affect your premiums.

You generally can cover up to 70% of your gross salary or net income. Every carrier is different, though. Some have 60% coverage maximums. For example, if you have a gross monthly salary of $5,000, you can cover up to $3,500 (70%). Some carriers allow almost 90% of coverage on net income.

There is an elimination period, or waiting period, which is like a deductible. It is the length of time that elapses before disability benefits begin. For example, if you select a 90 day elimination period and are disabled, you’ll be eligible for disability benefits on the 91st day. However, typically with carriers, you won’t get paid until day 120 or so. This means you need to have adequate savings to carry you and your family until benefits begin.

For long-term disability insurance, you can go as low as 30 days for a waiting period.

Disability benefits can be paid for as long as 5 years and with some carriers to age 67. The average disability lasts around 30 months. Therefore, a 5-year benefit plan should be OK.

The benefits of an individual policy are income tax-free. Note that benefits from group disability insurance plans (i.e. through your employer, if offered) are typically taxable.

Let’s talk about the different options, or riders, next.

Optional Disability Insurance Riders

You can add optional riders at an additional cost to your policy to best fit your needs and budget. Some popular rider options for nannies include:

Return of Premium Rider: If you never make a claim, you could receive all of your premiums back. Note: there may be more economical ways for you than purchasing a return of premium rider.

Catastrophic Disability Benefit: Will pay an additional benefit if you can’t perform 2 out of 6 activities of daily living or permanently cognitively impaired

Retroactive Injury Benefit Rider: Pays benefits from the date of disability due to injury if disability occurs within 30 days of the injury and continues through the elimination period.

Residual Disability Rider: This rider will pay a benefit if you return to work in your occupation, and you experience an income loss of 20% or more compared to your pre-disability income. Usually, the amount of disability income you receive is a percentage of your lost income. For example, let’s say you return to work and experience a 40% income loss. If your monthly disability benefit is $4,000, you will receive $1,600.

Mental Illness Rider: Nearly all carriers limit disability benefit payments due to anxiety, depression, schizophrenia, drug addiction, or alcohol abuse to 24 months only. You can have a 10 year benefit period, but if your disability is due from anxiety, for example, you’ll receive benefits for 24 months.

The mental illness rider extends the 24 month benefit period to your policy’s contracted benefit period.

The Best Disability Insurance For Nannies

You are probably wondering who we like to work with. First, we work with many disability insurance carriers. So, we are sure we can find one that meets your needs and budget.

However, there is one carrier that stands out to us. That carrier is Illinois Mutual. An A- rated carrier, Illinois Mutual operates in the middle-income market. More specifically, it offers a niche product designed for professions like nannies. They offer a variety of options that customize to your specific situation. Moreover, the premiums are generally very competitive. They even offer simplified underwriting (i.e., no medical exam) in many cases.

If Illinois Mutual is not available in your state, we work with many other quality carriers.

We also work with a good carrier on the group insurance side. If you would like to insure yourself and someone else in your company, Reliance Standard offers a great long-term disability plan. Depending on the number of participants, you could apply at guaranteed issue (which means no medical underwriting)!  Family members and spouses can apply, which is usually not the case with most small group insurance plans. Monthly benefits are up to $7,500 per month.

Alternative Insurances

If disability insurance is out-of-reach or you are uninsurable, there are other types of insurance that act like disability insurance (but not). They are affordable, too. Here they are:

hospital indemnity insurance – the ones we like pay a lump sum benefit for hospital admission or outpatient surgery. What can you do with $6,000 in the short-term? I bet a lot.

critical illness insurance – will pay a lump sum benefit if you are diagnosed with cancer, heart disease, or some other covered condition. These plans are more robust and can be a viable option for truck drivers.

accident insurance – we touched on accident insurance earlier. There are a couple of different types, all affordable. When you think about the occupational risk of mechanics, an accident insurance policy is an affordable way to protect yourself.

to show disability insurance for nannies can be cheapPremium Cost Of Disability Insurance

Of course, how much you spend is important. Seems like everyone wants to know about cost.

Well, the good news is disability insurance is easily customizable to your needs and budget. Depending on your health and riders, the premiums could run anywhere from $1.00/day to $3.00/day, or more.

Do you think that it is expensive? I bet you buy coffee almost every day or your lunch. What is more important? Protecting your family or buying a cup of coffee? There are many ways to afford disability insurance.

Here’s another way to look at it:

Disability insurance will generally cost 2 cents for every $1 you make. Think about that.

We at My Family Life Insurance try to keep our client’s premiums below $100 per month. Nearly all of the time, we accomplish that. You can easily customize a comprehensive policy for less than $100. Honestly, I think we might be the only agency that aims for that. The reason is we know you have other things to spend and save (like your retirement).

However, there are some characteristics outside one’s control. Remember, that disability insurance is based on 4 factors:

  • your age
  • occupation
  • health
  • income insured

You can’t change your age, and you can’t necessarily change your occupation. You can change your health…to a point. If you have type 2 diabetes, for instance, nearly all carriers will increase your premiums to compensate for the increased disability risk. Remember, we discuss that most disabilities are from disease and illness rather than accidents.

Nevertheless, we can structure a plan that protects you and your family, while meeting your needs and budget. We’ve helped many clients this way, and I am sure we can help you, too.

Protect Your Business If You Are A Business Owner

Are you self-employed? If so, you are a business owner and, therefore, have an advantage.

You can enroll in a policy that will pay your business expenses upon a disability. The policy is called a business overhead expense policy. Premiums are tax deductible. If structured properly, benefits are tax-free as well. This type of policy will ensure your business remains solvent during your inability to work from a disability. This is an additional reason why nannies need disability insurance. Contrast this policy to a traditional disability insurance that pays a percentage of your income.

Carriers who offer this type of insurance typically offer a discount on an individual disability insurance policy. Additionally, we only work with carriers that offer an occupation upgrade as well.

Now You Know Nannies Can Get Disability Insurance

We hope now you have a solid idea why nannies need disability insurance. Confused? Don’t feel that way. We’re here to help educate you and protect your income and future. Don’t know where to start? Use this disability insurance needs analysis worksheet. Follow the instructions; it is rather easy to fill out (we at My Family Life Insurance try to make understanding insurance easy). Next, feel free to reach out to us for our assistance or a quote. Use the form below if you want to.

It is important to note that we only work for you, your family, and your best interests only. Many agents may work for one carrier. That means, one solution. We don’t since we are not beholden to anyone except you, your family, and your best interests. We have helped many nannies secure the right disability insurance for their specific situation, giving them and their families peace of mind.

Learn More

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I am a CFP® Professional and have an MBA. I founded My Family Life Insurance to provide honest, trustworthy advice and economical insurance solutions to individuals, families, and business owners. Contact me if you have any questions. There is no risk! If I can't help you, you've learned a little more, and we'll part as friends. Seriously! Can your current agent say this? View my linked-in profile here:


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