Self-employed income protection insurance

Can you get income protection when self-employed?

Yup, self-employed folks are typically still eligible for income protection insurance. Regardless of whether you're a business owner or contractor, most policies require a minimum of 20 hours of paid work per week. The amount of coverage available will vary based on the specific policy and your earnings. Income protection insurance can provide regular payments to replace a portion of your income in the event of illness or injury that prevents you from working.

Insurers generally require applicants to be in 'gainful employment' at the time of their application. According to the Australian Taxation Office (ATO) and various insurers, gainful employment refers to being employed or self-employed for gain or reward in any business, profession, vocation or occupation where the work involves personal exertion (Source: Real Insurance and ATO). For those in non-traditional roles, 'eligible work' typically excludes income derived from passive sources such as rental properties, investment portfolios or retirement plans (Source: Suncorp).

How are premiums calculated for self-employed people?

The cost of your policy will depend on a few things like your age, what you do for a living, and the kind of coverage you want. Self-employed folks might have a bit more trouble figuring out their income since it can change a lot from year to year. Insurers usually want to see your tax returns to get a better idea.

And one more thing: your premiums might be tax-deductible. It's always good to check with your accountant to see if you can save a bit of cash there.

Compare income protection for self-employed people

Policy	Maximum Monthly Benefit	Maximum % of Income Covered	Maximum Benefit Period	Waiting Period Options	Self-employed Criteria	Apply
AAMI Income Protection	$10,000	75%	5 years	14, 28, 60 or 90 days	Excludes business expenses for self-employed applicants.	Get quote
Nobleoak Income Protection	$30,000	70%	Age 65	30, 60, 90 or 730 days	Self-employed income is calculated as an average of the monthly income generated by the business due to the individual's personal efforts (excluding incurred business expenses) over a 12 month period.	Get quote
TAL Income Protection	$30,000	70%	Age 65	4, 8, or 13 weeks	Must work at least 20 hours per week.	Get quote
InsuranceLine Income Protection	$10,000	75%	5 years	14, 28, 60 or 90 days	Income is calculated as your before-tax personal average income 12 months before your sickness/injury. Self-employed business expenses are taken out of the before-tax income to calculate your personal income.
Suncorp Income Protection	$10,000	75%	5 years	14, 28, 60 or 90 days	The insurer may ask you to provide verification of your occupation and breakdown of the duties required in running your business.
RAC Disability Income Insurance	$30,000	Age 65	30, 60, 90 or 730 days	14, 28, 60 or 90 days	Must be aged 18-55 and work at least 20 hours per week.
HCF Income Assist Insurance Income Protection	$10,000	70%	12 months	30 days	You're eligible if you've been self-employed for at least 12 months.	Learn more
AIA Income Protection					Must work at least 25 hours per week.
Asteron Income Protection	$60,000	75%	To Age 70	14,30, 60, 90 days, 1 year, or 2 years.	Monthly income excludes income you'll continue to receive from your business even if you're unable to work, ongoing rental income, commission or royalties.	Learn more
BT Income Protection	$60,000	80%	5 years	14, 30, 90, 180, 360, or 720 day	Monthly self-employed income is calculated before the deduction of income tax.	Learn more
ClearView Income Protection	$30,000	75%	To Age 70	14, 30, 60, 90 or 180 days	Must work at least 20 hours per week.	Learn more
Commbank Income Protection by AIA Australia	$10,000	70%	Up to 5 years to the age of 65	30, 90 days	Must work at least 20 hours per week and spend no more than 20% of your working hours at your place of residence.	Learn more
Onepath Income Protection	$30,000	70%	To Age 65	30 days, 60 days, 90 days, or 2 Years	OnePath Business Expense Cover is available for self-employed working at least 30 hours per week.	Learn more
Zurich Ezicover Income Protection	$30,000	70%	To Age 65	30, 60, 90 days, 1 year or 2 years	Self-employed income also includes the individual's share of the business' net income based on his/her's ownership or role in the business. Doesn't include investment income.	Learn more
St. George Income Protection	$30,000	70%	1, 2 or 5 years, up to age 65	4, 8, or 13 weeks	Monthly self-employed income is calculated before the deduction of income tax.	Learn more
Westpac Income Protection	$30,000	70%	1, 2 or 5 years, up to age 65	4, 8, or 13 weeks	Monthly self-employed income is calculated before the deduction of income tax.	Learn more

What are the benefits of income protection for the self-employed?

If you're self employed, making sure your income is protected is a key consideration. When you are injured or sick and unable to work for an extended period, income protection insurance provides an ongoing monthly benefit to replace your regular income.

For sole traders, this insurance is a critical tool for bridging the sick leave gap. Unlike employees who have access to paid sick days and annual leave, sole traders face an immediate loss of earnings if they cannot work. Income protection acts as a private safety net that mimics these employee benefits by providing a regular cash flow after a chosen waiting period (Source: Moneysmart).

Some of the advantages that this type of cover can offer to self-employed workers include:

• Replacement income. Without your income to rely on, you and your family can soon find yourself in financial trouble. Income protection insurance ensures that this doesn't occur.
• Workers' compensation. While self-employed workers don't qualify for workers' compensation cover, income protection provides similar cover but also includes protection for injuries and illnesses that are unrelated to work.
• Manage your obligations. Even though you are unable to work you will still have financial obligations from a personal and a business point of view. Income protection ensures that you can stay on top of these and simply focus on your recovery.
• Tax deductible. Premium payments for income protection cover are tax-deductible. According to the Australian Taxation Office, you can usually claim the cost of premiums against your taxable income if the policy is held personally and intended to replace lost earnings. However, any benefit payments you receive under the policy are treated as assessable income and must be declared in your tax return (Source: ATO).
• Can be funded through your super. Though many people aren't aware of it, you can take out income protection cover through your superannuation fund and pay for your premiums using your super balance.

Insurance available to self employed workers

Life insurance.

Covers your family in the event of death.

Income Protection.

Replaces some of your income if injuries or illnesses force you out of work.

Personal accident.

Similar to income protection however it only covers injuries.

Trauma Insurance.

Covers you if you go through a major illness e.g. heart attack or cancer

Disability cover.

Covers you if a total and permanent disability forces you out of work.

Liability insurance.

Covers you if an accident happens to someone else as a result of your work.

Do you need key person insurance?

All businesses have a key person without whom, the company would fall apart. If they were to die unexpectedly or become disabled and unable to work, the financial impact of this upon the business would be huge. Key person insurance , provides financial protection against the impact of the death, disability or incapacity of a key employee. If you're self employed, you're likely the key person, so getting insurance will provide you with :

• Tailored protection. Self-employed business owners can identify the person(s) that are critical to their business and take out a policy on those specific individuals.
• Ownership security. Key person insurance can help protect each party in a partnership when the other partner dies. This makes the transition of ownership much smoother.
• Finding a replacement. This cover can be used to cover the cost of finding, recruiting and training a new employee.
• Paying debts. Use your key person insurance benefit to settle any loans and outstanding debts.
• Covers business losses. Cover the cost of any lost sales, profit or goodwill as a result of the key person’s departure.

What is a buy-sell agreement and do I need it?

Buy-sell life insurance agreements offers a critical form of protection for business partnerships. Under such an agreement, the partners take out a life insurance policy on their co-owner but not on themselves. When one of the partners dies, his or her co-owners receive a lump sum life insurance benefit which they can then use to buy out the deceased’s share in the business from their surviving family members. The benefits of these agreements for self-employed people include:

• No financial loss for the company
• Smooth ownership transition in what could otherwise be a very difficult and potentially messy situation
• Ensures that the surviving owners have the funds they need to buy out the deceased’s share
• The family of the deceased partner gets a fair deal and suffers minimal financial impact from the death of their loved one
• Buy-sell agreements can also be taken out to cover trauma or total and permanent disablement
• Available in a variety of ownership structures (cross ownership, self ownership, corporate ownership etc) to suit a business’s needs and tax requirements

Is business expenses insurance something I should look at?

If you’re a business owner and you are injured or fall ill, it’s important that you are still able to pay your ongoing business expenses. Not to be mixed up with business insurance, business expenses insurance covers the fixed expenses of your business when injury or illness strike. It is owned by the company or partnership and the business owner is then listed as the life insured. It offers a benefit when you suffer a total or partial disablement, allowing you to cover costs like:

How does Workcover for the self-employed work?

While WorkCover insurance is a mandatory requirement for many Australian employers, sole traders and partnerships are often not able to benefit from the cover provided by this form of insurance. As sole traders are not defined as workers, they usually have no legal requirement to take out cover unless they exceed wage thresholds or employ a trainee. There are a range of other insurances sole traders can benefit from including income protection.

How do I find the right cover?

What cover do I need?

You’ll need to take the time to assess exactly what sort of cover you need. Do you want protection against accidents only, or for accidents and illnesses? Do you need death cover only or do you want cover for a wide range of potential risks? You’ll have to consider the financial obligations you will need to meet and how much insurance you’ll need to have in place to satisfy them.

What cover is available?

Finding the right policy can be a confusing exercise. From workers’ compensation to income protection, accident insurance, buy-sell agreements, key person insurance and more, compare the features and benefits offered by these different policies to know which one will offer the best coverage for you.

How much does it cost?

Cost is always an important consideration for any business, but make sure you weigh up not only the price but also whether you are getting value for money. Comparing quotes is quick and easy, so obtain multiple quotes to get a good idea of the price you will have to pay.

Who is the insurer?

Remember to look beyond the policies available and research who is offering the policies. Are they underwritten by a trusted provider with a long history in the industry?

Protect your business today and speak with an adviser

As this article demonstrates, there are a wealth of options available for people who are self-employed and seeking financial protection against a range of events. Of course, it’s important that you do your research and shop around to ensure that you end up with the right type and level of cover.

Frequently asked questions

• What documents do self-employed people need to apply for income protection?

  To apply for income protection as a self-employed person you will usually need to provide financial documents that prove your income. This can include your recent tax returns, profit and loss statements and business activity statements. Insurers use these to accurately assess your earnings and determine your eligible benefit amount.

• How does varying income affect my income protection claim as a self-employed person?

  If your income fluctuates as a self-employed individual, insurers typically assess your earnings over a defined period such as 12 or 24 months to calculate your average income. This average is then used to determine your monthly benefit. It is important to keep accurate financial records to support any potential claim.

• What is the difference between income protection and business expenses insurance for self-employed individuals?

  Income protection is designed to replace a portion of your personal income if you are unable to work due to illness or injury. Business expenses insurance on the other hand covers your fixed business operating costs such as rent, utilities and non-income generating employee salaries when you are temporarily disabled and cannot run your business. They offer different types of financial security.

• Can I get income protection if I am self-employed part time?

  Yes many income protection policies are available for self-employed individuals who work part time. Most policies require a minimum number of hours worked per week, often around 20 hours. The benefit amount you receive will be based on your average part time earnings.

• How do waiting periods work for self-employed income protection?

  A waiting period is the time you must be unable to work before your income protection payments begin. For self-employed people this period typically starts from the date you become totally or partially disabled. You choose the length of your waiting period when you take out the policy with common options being 14, 30, 60 or 90 days. A longer waiting period usually means lower premiums.

• What are common exclusions for self-employed income protection policies?

  Common exclusions for income protection policies include pre-existing medical conditions not declared or accepted by the insurer, self-inflicted injuries, illnesses or injuries resulting from criminal activities and some high risk occupations or dangerous hobbies. It is always best to thoroughly read the Product Disclosure Statement to understand what is not covered.

Written by

Richard Laycock

Editor

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Richard Laycock is Finder’s insights editor after spending the last five years writing and editing articles about insurance. His musings can be found across the web including on MoneyMag, Yahoo Finance and Travel Weekly. Richard studied Media at Macquarie University and The Missouri School of Journalism and has a Tier 1 Certification in General Advice for Life Insurance. See full bio

Co-written by

James Martin

Journalist

James Martin was the insurance editor at Finder. He has written on a range of insurance and finance topics for over 7 years. James often shares his insurance expertise as a media spokesperson and has appeared on Prime 7 News, Insurance News, 7NEWS and The Guardian. An experienced journalist, James' work has featured in publications including The Irish Times, Companies100 and In Business. He holds a Tier 1 General Insurance (General Advice) certification and a Tier 1 Generic Knowledge certification, both of which meet the requirements of ASIC Regulatory Guide 146 (RG146). See full bio

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