Being your own boss has its perks such as setting your own hours. However, being self-employed means you won't have the same benefits that regular employees have access to, such as sick leave and workers compensation insurance.
When you consider how important your health is to your ability to earn an income, it's clear that taking out some form of insurance cover is crucial. So what type of cover should a self-employed person take to protect themselves, their family or their business?
Compare income protection for self-employed people
Tip: You may be able to claim your income protection premiums as a tax-deduction.
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.
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.
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.
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.
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.
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. 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.
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.
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
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:
Accounting fees
Advertising costs
Utilities, heating, cleaning costs
Phone and internet costs
Security costs
Rent and rates
Professional body membership fees
Bank charges, interest on loans
Business-related insurance premiums
Salaries of non-income-generating employees.
This type of cover is available for sole traders and partnerships and is payable to the person responsible for managing the business’s expenses.
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.
Why you can trust Finder's income protection experts
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You pay the same as buying directly from the insurer. We make money from referral fees when you choose a policy, but you don't pay any extra.
We're experts
Our team of income protection experts have researched and rated dozens of policies as part of our Finder Awards and published 80+ guides.
We're independent
Unlike other comparison sites, we're not owned by an insurer. Our opinions are our own and all guides must meet our editorial standards.
We're here to help
Since 2016, we've helped thousands of Australians find income protection by explaining your cover options, simply and clearly.
Frequently asked questions
Every state and territory has different regulations around which types of insurance are compulsory for sole traders. For example, if you use a motor vehicle to operate in QLD, you'll need to ensure your comprehensive car insurance covers you for business use.
It depends. There are many types of insurance to suit different types of businesses but one place to start is often income protection. The best income protection will help replace your income if you're unable to work so you can meet any regular expenses, such as your ongoing bills, groceries and other family commitments.
Sole traders who have employees must hold WorkCover Accident Insurance unless they qualify as a self-insurer. Self-insurance means that you will manage and take on the costs and risks of your own workers' compensation claims.
A sole trader will likely need workers' compensation in NSW if they have an employee or engage contractors and also pay more than $7,500 in annual wages.
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.
One of the benefits of income protection insurance is that you may have the ability to claim a tax deduction on your premium benefits. Find out if the same rules apply for policies inside super.
Income Protection has specific features designed for dentists including needlestick cover.
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