Freelancing for a living? Get income protection insurance to cover your earnings if you're sick or injured.
As a freelancer, you're on your own if something goes wrong. You need a good insurance policy in case you become seriously injured or too ill to work. Income protection insurance provides freelancers with:
- An ongoing benefit of 75% of your regular income if you are unable to work due to serious illness or injury
- The ability to pay off debts and expenses while out of work.
Read on to learn more about income protection insurance for freelancers and how to shop around for better policies.
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How can freelancers benefit from income protection insurance?
Freelancers earn a living contract to contract, job to job. They do not receive the benefits of a full-time employee, such as:
- A stable, regular income
- Paid sick leave
- Paid annual leave
- Workers' compensation
Illness and health conditions can affect anyone. It is important for freelancers to have a backup source of income should they ever be unable to work. With income protection insurance freelancers can ensure they can maintain their lifestyle if they are left unable to work due to a health condition.
What types of insurance are available for freelancers?
Freelancers should definitely consider income protection insurance, but depending on the nature of your work there are many other policies worth looking at. These include:
- Business-based home insurance. If you run your freelance business from home then you'd better double check the exclusions on your home and contents policy. Many home insurance policies have exclusions for business use. You might need a separate, specific policy to cover your home office equipment.
- Professional indemnity insurance. If you provide professional advice as part of your freelance work you need to think about indemnity insurance. This protects you against liability claims made by clients to whom you provide advice. It's a good type of insurance for freelance consultants, agents and specialist advisers in a variety of fields.
- Public liability insurance. This type of insurance protects your business against damages caused to a third party or their property. If you have customers visit your premises as part of your work then public liability insurance is worth considering.
- Business car insurance. Many freelancers rely on a vehicle to get around and transport goods or equipment. As with a home office, many car insurance policies specifically exclude vehicle cover for business uses. Car insurance for business vehicles covers you in this case.
If you're looking at income protection insurance there's also a few types of policies to consider:
- Accident only. Accident-only policies are the cheapest form of income protection; however, they do not cover illnesses (consider the nature of your freelance work and decide whether illness or accident is more likely).
- Basic income protection. Basic policies cover most common illnesses and conditions and provide benefit payments of up to 75% of your income if you can not work due to an accident or illness. You do not need to be injured or sick from work to claim under these policies.
- Disability cover. Other than income protection insurance, freelancers could consider life insurance or a ‘disability’ policy. Most people have these policies through their superannuation funds. You can usually combine and income protection policy with life and disability insurance.
What types of freelancers need income protection insurance?
All kinds of people freelance and do all sorts of work. It is generally mental rather than physical in nature, but the exact nature of work can vary. Some common types of freelancers are:
- Writers and editors
- Graphic designers or technical drawers
- Virtual assistants
- Accountants or financial planners
- Freelance legal advisers
Regardless of the role, all freelance face the same risk of not having any paid leave or guaranteed return to work if they become sick.
How do insurers classify freelancers?
Insurers classify all occupations based on the work the individual performs. Common classifications include:
|White collar||Professional office jobs that are generally low-risk and typically have no extra insurance costs attached.|
|Blue collar/manual worker||Physical work that may bring higher premiums. Many insurers break down manual work into several categories based on the risk of the specific job.|
|High risk||Jobs with a higher degree of danger which results in higher premiums.|
|Individual consideration||These are jobs not listed or specifically categorised, which insurers will assess individually.|
While all freelancers do different jobs, most perform typical office style tasks. In this case, insurers would classify freelancers as ‘white collar’. To be classified as ‘white collar’ the role should involve mostly mental, rather than physical work and not expose you to any unusual hazards.
If you earn more than $100,000 per year and have university qualifications, you may be classified as ‘professional collar’. This will have a slightly lower premium than the ‘white collar’ classification.
In some specific instances, freelancers may be considered ‘special risk’ if they are required to work on high-risk sites or perform manual tasks.
How much do freelancers usually pay for income protection cover?
It's hard to accurately gauge an average policy cost for any occupation but it's particularly hard for freelancers. Your income protection policy premiums will depend on the type of work you do and the amount you earn. If your income fluctuates month to month you should look at a policy with agreed value cover rather than indemnity value (see the next section).
Here are some examples quotes taken from finder's comparison engine. Note that these quotes are for a graphic designer and assume a fixed monthly income.
*These quotes are examples only and are based on a 35-year-old, male graphic designer in NSW who doesn't smoke. Your actual quotes may differ from those shown. These quotes are accurate as of June 2017.
Why agreed value is an important cover option for freelancers
You have two options when taking out income protection insurance. You can receive an agreed value or an indemnity value benefit. An agreed value benefit is fixed when you purchase the insurance. It doesn’t change, regardless of how your income changes. If you make a claim your benefit will be the same amount as agreed to originally. Indemnity value benefit will be calculated on your income at the time the claim. If your income fluctuates month to month an indemnity policy is probably not the best option. Here’s an example of how it would work for a freelancer.
Jeni is a freelance graphic designer. She takes out an indemnity value policy. She typically makes $7000 a month, but when there isn’t much work, she only earns $2000.
After six months of making $2000 a month, she becomes sick and is able to work for three months. Her monthly income will be calculated by taking the average over the previous 12 months. This means she will receive less than her regular $7000 due to her recent period of lower earnings. If she had taken out an agreed value policy for $7000 per month, she would have received $7000 per month even after earning less for six months.
How can I find the right income protection insurance as a freelancer?
There are a couple of things freelancers need to consider to find the right income protection insurance.
|Eligibility||Some insurers won't offer income protection insurance to freelancers.If you have no other employment and freelancing is your primary source of income you may need to meet other conditions to be eligible. Some insurers require you to have been working for more than 12 months and for more than 20 hours a week.|
|Benefit period||The benefit period is the amount of time you will receive a benefit. You will be able to select a period from six months to five years. Freelancers do not have the advantage of sick leave or workers compensation. For this reason, it is worth considering a longer benefit period.|
|Waiting period||The waiting period is the amount of time you will need to be not earning an income before you can receive a benefit from your policy. Again, freelancers without leave should consider a short waiting period. You can select how long you want the waiting period to be when you purchase insurance.|
|Eligibility||Freelancers should be aware of the general exclusions of income protection policies. You will not receive a benefit if your claim is related to:|
Freelancers should check the product disclosure statement for all of the exclusions and conditions before taking out a policy.