self-employed

Sole Trader Insurance

Being your own boss is the dream of many Australians. But what happens to your income if you are seriously injured or fall ill?

While being a sole trader provides you with a range of rewards such as freedom and the satisfaction of knowing you are your own boss, it can be a doubled-edged sword. Since you are the sole person responsible for the success of the company, if you're not at work your company is not earning any money, which means you're not earning any money.

What types of insurance should I consider if I'm a sole trader?

Relevant types of cover to consider include:

  • Income protection. Income protection can provide you with a much needed safety-net (up to 75% of your income) when you're unable to work due to illness or injury.
  • Personal accident insurance. Personal accident provides you either with a lump sum or monthly benefit if you are injured.
  • Business insurance. Business insurance can cover your business against risks such as public liability.

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Apply online or over the phone with these direct insurers

Rates last updated October 17th, 2017
Name Product Short Description Maximum Monthly Benefit Maximum % of Income Covered Maximum Benefit Period Waiting Period
Protect your lifestyle with Virgin Income Protection. New eligible customers can earn 25,000 Velocity Points. Ends 31 Oct. Min monthly premium and T&Cs apply.
$10,000
85%
5 years
14, 28, 60, or 90 days
Receive up to 75% of you income (up to $10,000 per month) of your income if you're unable to work due to serious illness or injury.
$10,000
75%
5 years
30 or 90 days
Cover up to 75% of your monthly income if you can’t work due to illness or injury, up to a maximum of $10,000 a month. Take out cover today and you could get a bonus $100 Gift Card.
$10,000
75%
5 years
30 or 90 days
Cover up to 75% (to a maximum of $25,000) of your monthly income with NobleOak Income Protection. Benefit period can be tailored to suit your needs.
$25,000
75%
2 years or to the age of 65
30 or 90 days

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What types of insurances are relevant to sole traders?

Like any businesses, sole traders need a variety of insurances to protect themselves and their livelihood. Options include public liability insurance, motor vehicle insurance and business insurance, as well as personal insurances such as income protection or personal accident insurance.

Income Protection Insurance provides up to 75% of your income if you are ill or injured and unable to work, and total and permanent disability (TPD) insurance is often bundled with IP insurance to provide additional cover if you are totally and permanently disabled. Premiums for IP insurance held outside of your superannuation fund are also tax deductible, or if funded through your superannuation, benefits paid are taxed at a much lower rate.

As a sole trader it's a good idea to consider your business activities and decide what type of business insurance is right for you. For example, if you provide professional services, then a professional indemnity policy should be considered.

Some sole traders opt for personal accident insurance as an alternative to IP. While it only covers accidental injury and does not cover illness, it is a lot cheaper than IP insurance. Advantages of personal accident insurance include:

  • It pays a regular benefit for a period of time if you are injured and can’t work, so it can provide an alternative if you don’t qualify for IP insurance.
  • Unlike IP insurance, there are no medical questions or tests involved at application.
  • Capital benefits are often paid in the event of permanent disability or death.
  • Premiums can be lower than IP insurance.

The most important reason sole traders to consider cover

No workers compensation

Unlike most employees in Australia sole traders are not eligible for workers' compensation. Not having access to work cover mean that if you're injured on the job, you won't have access to any form of financial compensation.

While it's not a legal requirement for you to have personal insurance, you may want ton consider an income protection or personal accident policy.

Workers compensation vs work arrangement

Employment statusAre you eligible for workers compensation?Insurance types to consider
EmployeeYesIncome protection for extra protection
Sole traderOnly for your employeesIncome protection to fill the gap of workers compensation Personal accident insurance workers compensation for your employees
ContractorYes (if you are considered a worker under state legislation)Income protection if not eligible for workers compensation Personal accident insurance

Why can’t sole traders get workers compensation?

A sole trader does not qualify for workers compensation because, in order to be eligible, you must be employed by another person or company. You must be their employee and as such, they are required to take out workers compensation on your behalf.

As a sole trader, you are not an employee but an employer and, if you have any staff working for you, you must take out workers compensation on their behalf. You should also look for other forms of financial protection for yourself and your business, such as IP insurance.

You will need to provide cover for your employees

It's worth pointing out that if you are a sole trader, you will need to have adequate work cover in place for any of your employees.

Things to consider when applying for sole trader insurance

When considering sole trader insurance there are a few important factors to look at:

  • Waiting period. As business expenses insurance has waiting periods anywhere from 14 days to 12 months. The waiting period determines how long you will have to wait receiving the benefit after you make a claim. The shorter the waiting period the higher your premium.
  • Features and Limitations. No two policies are the same. Make sure you understand the features and limitations of your policy. Take note of how things are defined to avoid any misunderstanding and disappointment when making a claim.
  • Flexibility. Another important factor that you might want to check is how flexible your policy is, make sure it increasers with CPI to avoid being underinsured.

Am I eligible for Sole Trader Insurance?

Criteria will generally vary between policies, but in general:

  • There is usually an age limit. This is usually between 18 and 75 for personal accident, and up to 64 for income protection.
  • Permanent resident. You'll need to either be a citizen or considered a permanent resident of Australia. If you're on a working visas, you can get cover if you are considered a permanent resident and a policy agrees to cover you.

How much cover do I need?

This is perhaps one of the most common questions people have. While the answer to this question varies from person to person, you can calculate you needs by asking yourself:

  • Do you have funds you can readily access? Having some savings only apportioned to your business can provide you with a much needed safety-net and mean that you don't require as much cover as someone who is devoid of saving.
  • Do you have plans to expand your business? If you're planning on expanding your business at any time in the future, you need to ensure that your company can continue to grow without you at the helm.
  • Do you have loans or debts? While sole trader insurance is for protection of your business' fixed costs, it can also lessen the financial strain for you in times of need. It will allow you to continue to pay your ongoing business expenses.

Sole trader insurance gives you the assurance of being able to continue your business even if you fall into hard times. Why risk losing it all when you can have something to protect your lifelong investment with sole trader insurance?

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* The offers compared on this page are chosen from a range of products finder.com.au has access to track details from and is not representative of all the products available in the market. Products are displayed in no particular order or ranking. The use of terms 'Best' and 'Top' are not product ratings and are subject to our disclaimer. You should consider seeking financial advice and consider your personal financial circumstances when comparing products.

Richard Laycock

Richard is the insurance editor at finder.com.au. He is on a mission to make insurance easier to understand.

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