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Income Protection for Self Employed Australians

When working for yourself as a sole trader or small business owner, you are responsible for the failure and success of your business. If you were to get sick or injured, you’d have no holiday or sick leave to help with your month-to-month expenses, which can be even more stressful if you’ve got a family to support.

Russell Cain

Fact Checked

Updated: 19 May 2024

Self-employed insurance helps with the continuation of your income stream at a time your need to focus on recuperating. Generally, personal income protection provides self-employed Australians with a monthly benefit of up to 70%, should you be unable to work for a specific period due to an illness or injury.

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What is personal income protection insurance for self-employed?

Personal income protection insurance for self-employed Australians provide you with a monthly benefit of up to 70% of your regular income when you’re unable to work for a specified period because of an injury or illness sustained at work or outside of work. Alternatively, a lump sum option may be available from select insurers.

Take note: Your benefit will usually not be paid immediately as income protection often includes waiting periods.

Generally, income protection policies protect you 24/7 anywhere in the world. Although, it is best to check the insurer’s product disclosure statement (PDS) to confirm the extent of the coverage provided.

Can you get income protection if you are self-employed?

Yes, generally, self-employed professionals can get income protection insurance for money earned through your own personal exertion or activities. If you’re unable to work because of an illness or accident, an income protection policy can provide you with up to 70% of your earned income. Also, premiums are generally tax-deductible, which helps you save while also protecting your livelihood.

To qualify for self-employed income protection insurance, you generally need to be doing permanent part-time work, with some insurer’s requiring proof of at least 20 hours work per week on a permanent basis. However, this will depend on the insurance company you choose.

Agreed value income protection is no longer available

As of 31 March 2020, Agreed Value income protection policies became unavailable for new customers. Agreed Value income protection was removed in an intervention effort by the Australian Prudential Regulation Authority (APRA) to help the income protection market become more sustainable.

An Agreed Value income protection policy allowed you to provide financial evidence of your income at the time that you applied; the monthly benefit was then calculated and “agreed’” or “guaranteed” according to your income at the time of taking out the policy.

If you needed to claim your income protection, you would receive this agreed amount even if your income was lower at the claim time. Compare income protection insurance for self-employed workers.

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

You’ll typically want to protect your ability to earn an income if you have a mortgage to pay, outstanding debts or a family to support. When you work for yourself, there are no sick leave or employee benefits. An income protection insurance plan can help provide sufficient protection when you’re unable to earn money because you can’t work due to an accident or sickness.

If you own your own business and have employees, you are legally required to take out workers compensation. However, Workers Insurance cover does not typically provide benefits for self-employed Australians, which is why you might want to consider income protection.

Benefits of income protection when working for yourself

Self-employed people that might need income protection insurance

What kind of income protection can you get?

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What other insurance policies might be relevant when working for yourself?

When owning your own business, you might want to consider purchasing:

How do you apply for self-employed income protection insurance policy?

Important: Review the company’s product disclosure statement (PDS) and familiarise yourself with their list of exclusions. When applying for income protection, you’ll generally follow the below steps:

Frequently Asked Questions and Answers

No, when self-employed, you will not be entitled to sick leave or paid holidays. Income protection provides you with financial security should you be injured or get sick as it covers up to 70% of your regular income when you aren’t able to work.

For Indemnity income protection, the insurer will generally require that you provide proof of income at claim time. You’ll also need to give the insurer:

  • Personal tax returns,
  • A profit and loss statement and
  • Your balance sheet.

Should you contract Covid19, you’ll generally be able to claim from your income protection. Income protection policies usually do not have any exclusions for Coronavirus. So, if you meet all the terms and conditions for your policy, your income protection will help cover any loss of income while you recover. However, it’s best to check with your insurer as policies vary.

Yes, if you’re listed as the policy owner, you’ll generally be able to claim your income protection insurance premiums when your policy is held outside your super fund, and you paid the premiums with you own money.

The cost of income protection insurance for an individual who runs and owns their own business is generally dependent on your type of occupation, age and gender, health and smoking status, the amount of cover you purchase and the state you live in. Your choice of waiting and benefit period will also influence the price of your premium. Longer waiting periods and shorter benefit periods will usually result in reduced premiums.

No, you can generally only get 70% of your gross income covered, this is because if you were to receive 100% coverage, you might be less motivated to return to work after recovery.

Depending on your employment status and the structure of your policy, income protection may pay 4 to 6 times your monthly benefit, up to a maximum of $70,000 if you pass away while already on a claim. However, it might be worth considering a separate life insurance policy with a more substantial lump sum payout if you have outstanding debts, a mortgage or a family to support.

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Specialist

Russell is the founder and CEO of Life Insurance Direct and has been quoted in The Sydney Morning Herald, The Age, Independent Financial Adviser, Risk Adviser, Adviservoice, and Insurancenews. Russell has over 15 years’ experience in the Australian life insurance & financial services sector and is instrumental in driving the latest innovations in our insuretech platform.

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