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The downside of working as a contractor 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.
The challenges you face depend on the job you perform as a contractor. The risks of a construction worker are different from the risks of an admin or office worker, although both professions have their own dangers that must be taken seriously.
According to Safe Work Australia, construction workers suffered most from the following injuries during 2015:
As of 15 April 2021, 29 Australian workers were killed at work in 2021, with 4 of those being construction workers. Comparably on the same date in 2020, 13 construction workers died at work.
Safe Work Australia reported that the following issues were the top three dangers facing contractors in the manufacturing sector during 2015:
As of 15 April 2021, 2 Australian manufacturing workers were killed at work in 2021. Comparably on the same date in 2020, 6 manufacturers died at work.
People in the health profession face risk of exposure to illnesses and viruses. People in corporate jobs may have to deal with stress as well as other issues such as anxiety and depression. These white collar professions often come with a high salary, so losing that income due to injury or illness can be a massive strain.
Aside from income protection there are a few other types of insurance a contractor should look at, depending on their circumstances.
Aside from income protection there are a few other types of insurance a contractor should look at, depending on their circumstances.
| Insurance Type | Pros | Cons |
|---|---|---|
| Income protection |
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| Trauma insurance |
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| Total and permanent disability (TPD) |
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As a contractor, you need to consider if the lump-sum payment will cover your costs for the time you are unable to work. And what happens when the lump sum begins to run out? Will you be well enough to take on more contractor work?
Insurers classify contractors into a number of different classes depending on the nature of the work they do. These include:
Looking at the kind of job you have and how you may rate on this list can help you determine if you need income protection. A white collar worker may not seem to be a candidate for insurance as it is difficult to suffer an injury in the office, but don’t forget about stress and other mental illnesses which can result in you being unable to work.
Freelancing is itself a form of contracting. Generally freelancers are self employed and often work remotely. As a freelancer it's equally important to protect your income if something should happen and your source of income vanishes.
There are a couple of things freelancers need to consider to find the right income protection insurance.
| Issue | Details |
|---|---|
| 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:
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As a contractor applying for income protection insurance, an insurer will calculate your earnings based on several possible factors:
No two workers have exactly the same needs and this is particularly true of contractors. The cost of income protection insurance depends on:
The following quotes are examples for a lawn mowing contractor, but the price of an income protection policy will vary widely depending on the type of work a contractor performs.
You need to check the various product disclosure statements of companies which provide these policies. In general, you should look at these items in your policy:
In some cases, contractors are eligible for workers' compensation if they can be classed as employees or workers. This depends on:
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:
If you are a contractor or freelancer, you should also consider taking out other types of insurance to help protect your business and source of income.
The tradies guide to income protection insurance.
Find out how income protection for doctors can help you if you are a medical professional and become ill or injured.
Income Protection has specific features designed for dentists including needlestick cover.
