Disability insurance for self-employed professionals

Every year, thousands of self-employed professionals in the Netherlands miss work for at least 4 days due to illness or injury. You can sometimes cover a short period of illness financially with savings or with another income. For example from your partner. But if you are ill or incapacitated for a long time, this can be difficult. With an AOV you insure yourself for a certain amount that you can live on. You agree this amount with your insurer. If you do choose to protect yourself against incapacity from work, you have several options: you can set money aside, take out disability insurance or participate in a donation circle.

Private disability insurance

Disability insurance (Arbeidsongeschiktheidsverzekering, AOV) covers the costs you incur if you fall ill or become injured or incapacitated for work. It also provides funds for your next of kin, should you meet with a fatal accident. The monthly premium for the AOV depends on a number of factors, such as:

• Your job. Do you have a high risk of physical or stress-related complaints?
• Your age. After a certain age you can no longer take out AOV. Or only at a higher premium.
• The deductible excess period. That is the period in which you yourself compensate for your loss of income if you fall ill. This is also called waiting time.
• The coverage you choose. The more extensive the cover, the higher the premium.

There are options to lower the monthly premium:

• Choose a shorter pay-out period, like two or five years
• Choose a longer deductible excess period
• Join a collective AOV through your industry organisation or your interest group for self-employed professionals

When making a choice, take into account the income of your partner, your financial reserves and the risk of a limited coverage. If you had already taken out disability insurance in your home country, check if you are still insured when you live and work in the Netherlands.

AOV and taxes

Disability insurance insures your personal income. So, the premium is not a business expense and is not deductible for your company.

Periodic payment

The premium is deductible in your income tax return. Does the AOV provide a periodic payment, for example monthly? In that case, you can deduct the premium for the AOV in your income tax return as 'expense for other income provisions'.

You must pay income tax on the regular payments you receive if you are (partially) occupationally disabled. In your tax return, you state the benefits as 'income from previous employment'.

Payment in one go

If the AOV provides a benefit in a lump sum, you cannot deduct the premium paid. The payment is therefore not subject to income tax. The amount does count towards your assets in box 3.

Read more about disability insurance and taxes on Belastingdienst.nl (in Dutch).

Safety net insurance

For a small group of self-employed professionals it is not possible to take out a regular AOV, due to severe medical problems. They can make use of private safety net insurance (in Dutch). The condition for this insurance is that you cannot take out a normal AOV for medical reasons and you have been self-employed for less than fifteen months. Is the insurance company where you want to take out this insurance a member of the Dutch Association of Insurers (Verbond van Verzekeraars)? And does the insurance company offer disability insurance? Then the insurance company is obliged to offer such a safety net insurance. The rules for deducting the premium for the private safety net insurance from your income tax are equal to those of the AOV.

Voluntary Sickness Benefits Act and WIA

If you are a self-employed professional, you can take out a voluntary sickness insurance with the UWV (in Dutch). This health insurance pays out when you are sick and can no longer work. The maximum amount that can be insured is the last-earned daily wage, as long as this does not exceed the statutory maximum premium daily wage. The benefit depends on how incapacitated for work you are (in percents). The UWV determines this on the basis of suitable work. In the event of long-term incapacity for work, the UWV will look at what you can still do. The benefit consists of a maximum of 70% of the insured amount for a period of two years maximum. The premium is 9.8% of the insured amount.

In addition to the voluntary sickness insurance, the UWV also offers the voluntary WIA insurance (Work and Income According to Labour Capacity Act). The WIA insurance comes into effect when the two years of voluntary sickness insurance are up. If you want to be insured after those two years, you must take out the WIA insurance directly with the Sickness Benefits Act insurance (Ziektewet, ZW). The insurance is also linked to the maximum daily premium wage. To receive benefits, you must be incapacitated for work for at least two years with a percentage of 35%. ZZP Nederland provides more information (in Dutch).

Crowdsurance

An alternative to insurance is crowdsurance. This is not an insurance but a donation circle, a mutual financial support system. There are several forms of donation circles (in Dutch) in the Netherlands, such as Broodfonds, SharePeople, Ziektefonds, SamSamkring, CommonEasy en Voorzieningenfonds. These are all groups of members that agree to help each other financially in case of illness or disability. They are based on mutual trust and solidarity. Participants make mutual agreements and save money to support each other. Here is how it works: you deposit a certain amount into a personal bank account. You deposit this amount every month until you have built up a certain buffer. You may withdraw the amount that exceeds this buffer. If someone in the donation circle falls ill, after two months, the fellow members receive a payment request for part of the amount needed to help the patient with his or her income.

There are some differences between the different circles as the group members determine the rules together. Two donation circles are explained here.

Bread fund

A bread fund (broodfonds, in Dutch) is based on trust and transparency. The members know each other and meet in person. A collective of maximum fifty entrepreneurs put money aside every month in their own bread fund account until a maximum has been reached. The monthly deposit for a bread fund varies from about €30 to just over €100 per month (in 2020). If someone from the group is sick for longer than the agreed 30-day deductible period, the other participants will transfer an amount from their bread fund account to the patient each month. The benefit you receive from a bread fund depends on the contribution. There is a minimum and a maximum amount. The money you deposit every month stays yours. When you leave the fund, you will get that amount back. Minus the amounts you have donated to sick fund members.

Sharepeople

Sharepeople is an online network and has no maximum amount of members. Participation is for everyone who is fully able to practice their own profession and who is younger than sixty at the start of participation. Beforehand you determine how much net income you would need if you were to become ill. Based on the ‘disability percentage’ (the number of sick people compared to the number of participants), you make a donation once per month.

Donation circles and taxes

The monthy deposits are private capital. It is not a business expense and is not deductible. A gift from the donation circle is composed of smaller gifts from the other members. You may receive a certain gift amount tax-free from each member per year. Higher than that, you pay gift tax (schenkbelasting). You do not pay income tax on the donation. Donations you make to other members in your gift circle are also not deductible for income tax purposes.

Combination

There are plans to make the AOV compulsory. When that is the case, you could opt for a combination of a donation circle and AOV with a deductible period of two years. That way, if you become ill or incapacitated for work, you will receive gifts from the donation circle for the first two years. After that, you will receive income from the AOV. Because of the long deductible period of your AOV, your premium will be lower.

For more information, you can contact one of the organisations that promote the interests of freelancers/self-employed professionals. They can offer you legal advice, information about further education and much more.