Income Protection for Contractors

Yes! Sub-contractors can take out income protection insurance

Income protection insurance is designed to help you stay on top of your finances if you’re unable to work due to illness or injury. If you injure yourself or contract a serious illness and are forced out of work  for a period of time, income protection insurance will provide an ongoing benefit payment of at least 75 per cent of your salary.

This type of cover is particularly important for contractors and subcontractors not eligible for the benefits provided to full-time employees i.e. annual leave and sick leave.

But am I eligible for income protection is I am employed as a contractor?

Each insurance provider has their own eligibility requirements when it comes to income protection and some do cover contractor workers. The benefit you will be paid is usually based on average earnings over a period of time, such as average earnings over the last 3 months. An insurance consultant can help you find providers that offer cover to contract workers.

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Why should contractors take out Income Protection?

While there are many benefits of working as a contractor, the downside of this type of work is that you won’t receive any payment in the event of illness, injury or strike. If you fall ill or become injured, unless you happen to have a substantial amount of money stashed away, you’ll need insurance cover in place. This is where income protection cover comes in. In fact, some work sites won’t allow contractors onto the site if they don’t have any income protection cover in place. As mentioned above, income protection provides a monthly benefit (usually equivalent to 75 per cent of your regular income) if you’re temporarily unable to work. It can help you pay off your mortgage, pay bills and continue to provide for your family while you’re out of action. It promises financial security and offers great peace of mind.

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Are contractors eligible for workers compensation?

The Workers Compensation scheme in Australia, also known as WorkCover, provides benefits to employees who have been injured at work and who cannot work due to such injuries. This national plan is designed to protect workers from financial loss and is managed by state and territory governments. Workers compensation is basically a type of insurance that gives you cover for medical and living expenses when you sustain an injury in the workplace. You can receive four types of benefits under workers compensation: income replacement, permanent disability, medical benefits and death benefits. Employee vs Contractor: How are they different? In some cases, contractors and subcontractors are eligible for this scheme, while in other situations contractors and subcontractors will not receive any workers compensation cover. There are several factors that need to be taken into consideration to determine whether someone is an employee or a contractor. These include:

  • Their degree of control over how work is performed
  • Their hours of work
  • The work they are expected to complete
  • Their level of financial risk
  • How their superannuation is handled
  • How they are paid
  • Whether they receive paid leave
  • How they pay tax
  • Whether they use their own tools and equipment or whether those are provided by an employer
Determining whether someone is a worker or a contractor is a complex process and is one of the disadvantages of workers compensation. It’s even possible for someone to be hired as a contractor and be a contractor for other purposes such as tax, but still be classified as a worker when it comes to workers compensation. It’s the job of principal contractors to ensure that their subcontractors have taken out appropriate workers compensation coverage for their workers.

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Is it still worth having income protection in place if I am eligible for workers compensation

  • Not covered at work: Even if you do qualify for WorkCover, there are other issues to take into account. You may have to wait to receive benefit payments under the scheme, while you only receive cover if the injury occurs at work—not on your way to or from work. Benefits may even be withheld while your level of disability is assessed.
  • Changing legislation: In addition, WorkCover is always subjected to legislative change from state or territory governments, which can muddy the waters even further. For example, in July 2012 the NSW state government announced changes to WorkCover legislation which capped medical benefit assistance to injured workers.
  • Increased level of cover: Income Protection offers a greater level of cover 24 hours a day—not just when you’re at work. Income protection cover also includes other benefits like childcare cover if you die, and lump sum payments for workplace injuries that result in death or total and permanent disablement.

How will my income be determined if I work as a contractor?

Applicants are classed as self-employed contractors or sole traders and their income is calculated from the money earned from contracting projects that have been fully completed. As mentioned above, an insurance provider may look at the last 3 months to assess what the worker was earning and an appropriate benefit. Some insurance companies ask contractors to provide copies of any contracts they currently have in place. You’ll also need to supply the predicted dates of completion and the agreed value of each of your current contracts. In some cases insurance providers will also request for you to provide evidence of having earned a consistent income for the previous two financial years.

What alternatives are there for to income protection for contractors?

In case you’re not eligible to apply for income protection, there are a few other types of insurance cover you can take out to offer financial assistance when you’re sick or injured:

  • Personal accident insurance: If you suffer an accidental injury, personal accident insurance will provide cover by paying up to 75 per cent of your regular income in either lump sum form or as a monthly benefit. Unlike income protection insurance, it doesn’t offer any cover for serious illness. As a result, premiums for personal accident insurance are typically more affordable.
  • Accidental death insurance: Accidental death insurance is a straightforward and affordable type of life insurance that provides a lump sum benefit payment for accident-related death or accidental injury. The death of the person insured must not be in any way linked to their state of mental or physical health. This type of cover can offer financial security to your family when you’re gone.

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