Explore Income Protection

Income protection is a type of insurance that provides a monthly benefit of up to 70% of your income for a set amount of time (known as a benefit period) if you’re unable to work due to injury or illness. The benefits of income protection insurance are particularly useful for self-employed people and small business owners, as they often don’t have access to workplace benefits like annual and sick leave. As such, monthly payments through an income protection policy can be especially important for maintaining your loved ones’ quality of life or providing cash flow to handle business expenses in your absence.

Can you get income protection if you’re self-employed?

Self-employed workers can take out income protection insurance. However, you may have to meet some specific criteria to be eligible for cover. For example, insurance providers may require you to have been continuously self-employed for a specified timeframe and work a certain number of hours per week before taking out cover.

It’s important to note that income protection covers your income, not the income of your business. If you own and run a business, you may wish to consider business expense insurance to help pay for your business fixed expenses and maintain your operation if something happens to your business.

How is income protection calculated for the self-employed?

How your income is calculated when you’re self-employed differs between funds. Generally, your level of cover is calculated based on your share of the business’ profits from your personal effort minus the business expenses involved in making that income. To prove this, you’ll often have to provide your insurer with a copy of your financial statements such as your tax returns and profit and loss statements before they will cover you.

Since March 2020 all Income protection policies are indemnity value policies. This means that your income is assessed when you make a claim, not when you take out your policy. This is usually done by taking an average of your income over the 12 months prior to making a claim. However, this will differ between insurers, so for the exact definition of how your insurer calculates your benefit amount, make sure you refer to the relevant Product Disclosure Statement (PDS).

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WorkCover insurance for the self-employed

WorkCover provides compensation to workers employed by businesses in Australia if they’re injured on the job, but it doesn’t cover self-employed workers. However, if you’re a contractor and you hire subcontractors to help you with your work for a client’s business, both you and the business you’re completing work for will need to provide workers compensation for the subcontractors.

The difference between workers compensation and income protection is that income protection can cover you if you’re unable to work due to sickness or injury, whether it occurred on the job or outside of work.

Do sole traders need WorkCover?

As a sole trader, you can’t get worker’s compensation for yourself; only for employees who work for you. However, sole traders can get protection for their business with business insurance. You can also get a life insurance policy or income protection for sole traders to cover your life or individual income.

Business insurance for tradesmen

Tradespeople often operate as self-employed sole traders. Learn more about business insurance for trades here.

Frequently asked questions

How much income protection should I have?

It depends on how much money you’d need to maintain your lifestyle if you couldn’t work. It’s important to ensure that the payout you’d receive is enough to cover your regular household expenses. To get an idea of the right level of cover for you, look at your current regular income and compare it to your household expenses. If you couldn’t manage your expenses with 70% of your regular income, it might also be worth considering a life, trauma or total and permanent disability insurance policy that could pay a lump sum amount if something happened to you.

If you’re self-employed, it can be hard to determine your regular income, so you may want to consider consulting with a financial adviser.

Are there occupations that can’t be insured?

Yes, there are some occupations that are considered too risky for insurance companies to provide any income protection. This can be either because they are hazardous jobs and have a higher risk of injury, or the role typically experiences fluctuating income that is hard to predict.

Some examples of jobs that are risky for insurance companies to provide income protection for may include roles such as:

  • Commercial fishermen
  • Construction workers and tree loppers
  • Miners
  • Roles involving contact with harmful substances.

Note: This list of occupations is intended as a guide. The specific list of occupation exclusions will vary between insurers, so always refer to the PDS for the full details.

Can I get income protection through my superannuation if I’m self-employed?

It’s possible to have an income protection policy bundled in your super fund. However, if you’re self-employed, you need to organise your own super contributions. If you already have a super fund from a previous role where you weren’t self-employed, you might be able to continue making contributions to that account.

When it comes to income protection through superannuation for self-employed people, it’s important to note that the premiums are taken from your super contributions. If you don’t make super contributions, the super fund will charge your insurance fees from your super balance, which can leave you with less money for your retirement.

There are some further pros and cons to consider. While premiums may be relatively affordable for income protection through super, the cover and features you have access to might be limited. If your super is through a super fund, claims may take longer to process since the fund trustee needs to be part of the claim approval process. You also won’t be able to claim a tax deduction for your income protection premiums if your policy is through your super fund and your premiums are deducted from your contributions.

How are income protection premiums calculated?

The cost of your income protection insurance premiums will be based on a number of factors, including:

  • Whether you smoke
  • Your pastimes
  • Your health and lifestyle
  • Family medical history
  • Your occupation
  • Your gender and age
  • Your gross annual income.

These are only a few examples of possible factors involved in calculating your premiums. For a full list of how your insurer calculates your premiums, refer to the policy’s PDS.

Comparing income protection insurance is easy – regardless of who employs you

If you’re self-employed and considering getting income protection insurance, you can get started with our free income protection comparison service. We have a range of income protection policies available from our partners that you can compare within minutes with our easy-to-use tools.

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