Navigating Self-Employed Income Protection in Australia

As a self-employed professional in Australia, you face unique financial challenges, particularly when it comes to maintaining a steady income during unforeseen circumstances. This is where income protection insurance becomes essential. It acts as a financial buffer, offering up to 70% of your income if illness or injury prevents you from working for longer than the waiting period.

Published February 21, 2024

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Understanding the Need for Self-Employed Income Protection

As a self-employed individual, you navigate a path filled with unique financial risks that differ significantly from those in traditional employment. The absence of a regular paycheck brings uncertainty, especially when managing unexpected situations. This unpredictability can impact your business and your family’s financial stability. Without the cushion of employer-provided benefits or sick leave, periods of illness or injury can quickly translate into a loss of income, making it challenging to manage day-to-day expenses and long-term financial commitments.

This is where the importance of income protection insurance becomes evident. It’s not just about safeguarding your income; it’s about ensuring the financial well-being of your family during times when you’re unable to earn. Income protection acts as a financial safety net, providing a substitute income stream during forced absence from work. This support is crucial in helping you maintain your lifestyle, meet ongoing expenses, and fulfil family obligations without depleting your savings or resorting to loans. For self-employed individuals, securing income protection is a strategic move to mitigate financial risks and maintain stability in life’s uncertainties.

Eligibility and Options

Income protection insurance is readily available for self-employed individuals, but understanding the eligibility criteria and required documentation is key. Eligibility hinges on your status as a self-employed individual, which means you own all or part of your business. This includes businesses operating under a company structure or as a sole trader.

  • Typically you need to work at least 20 hours in your primary occupation.
  • You can insure yourself for up to 70% of your personal exertion income, being self-employed the insurers typically view this as your turnover less any related business expenses in generating this income.
  • Have an insurable medical history (Generally, no medicals are required, but may be requested for complex medical histories)
  • Have an insurable occupation (Not too risky from an insurer’s perspective). While most are, you will need to further detail the duties of your occupation to confirm your risk to the insurer as a number of self-employed persons have diverse duties.

Self-Employed Income Protection Coverage 

Income protection insurance for self-employed individuals is designed to cover up to 70% of your income if you cannot work due to sickness or injury. This coverage is crucial in maintaining financial stability when you cannot earn. However, it’s important to note that this insurance does not cover situations like redundancy or economic downturns. For those whose businesses are not profitable for reasons other than their inability to work, income protection may not provide benefits.

What’s Covered

Income Protection for self-employed individuals typically includes:

What’s Not Covered

However, there are specific exclusions to be aware of:

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Additional Benefits of Self-employment Cover

Income Protection insurance offers financial security and peace of mind in times of uncertainty. To ensure comprehensive coverage tailored to individual requirements, the policy includes a variety of benefits and options. These range from essential built-in benefits that provide foundational support, to optional extras that can be added for more specific coverage requirements. Understanding these benefits and options is crucial in selecting a policy that aligns with your personal and professional circumstances. Here’s a closer look at what’s available:

Built-in Benefits

These are standard with your policy and include:

Optional Benefits

Business Expenses Insurance

Safeguarding your business against unforeseen health issues is crucial in the unpredictable entrepreneurship journey. Business Expenses Insurance is designed to provide financial support when you cannot work due to sickness or injury. This cover typically pays a monthly benefit, helping you manage the fixed operating expenses of your business.

Who needs Business Expenses Insurance?

Eligibility for this insurance typically includes self-employed individuals or small business owners in Australia, particularly those with no more than five staff, including themselves. It’s generally available to those aged between 18 and 60, with coverage expiring at 65. To qualify, you usually need to work a minimum of 20 hours per week in your principal occupation.

Key Features and Benefits

Additional Features for Comprehensive Protection

Why Consider Business Expenses Insurance?

This insurance is crucial for maintaining your business’s stability during health-related absences. It ensures that fixed operating expenses, such as rent, utilities, and staff salaries, are taken care of, allowing you to focus on recovery without the stress of financial strain.

What’s Typically Not Covered

It’s important to note that Business Expenses Insurance doesn’t cover everything. Typically, it won’t cover the following:

How to compare self-employed income protection insurance

When you’re self-employed, picking the right income protection insurance is key. Focus on policies that align with your specific requirements. Consider the cover amount, waiting and income protection benefit periods, and what premiums fit your budget.

Frequently Asked Questions and Answers

  • What is Self-Employed Income Protection Insurance?

    Self-Employed Income Protection Insurance provides a financial safety net if you’re unable to work due to illness or injury. It pays a percentage of your regular income, helping you maintain your lifestyle and meet financial commitments.
  • How does Business Expenses Insurance benefit self-employed individuals?

    Business Expenses Insurance covers ongoing fixed business costs, like rent, utilities, and employee salaries, if you’re temporarily unable to work. It ensures your business keeps running, even when you can’t.
  • Can I tailor my Income Protection Insurance to suit my self-employed requirements?

    Yes. You can customize aspects like the waiting period, benefit period, and coverage amount to suit your specific self-employed circumstances, ensuring the policy aligns with your financial and business requirements.
  • Are there tax benefits to having Self-Employed Income Protection?

    Yes, Income Protection Insurance premiums are tax-deductible for self-employed individuals in Australia. However, benefits received are typically considered taxable income. It’s advisable to consult a tax professional for advice.
  • How does income protection insurance work with my other insurance as a self-employed person?

    As a self-employed individual, income protection insurance works alongside other policies like life, TPD, or trauma insurance. It focuses on replacing income if you’re unable to work due to illness or injury. Other insurances might offer lump-sum payments for specific conditions or disabilities. Understanding how these policies complement each other ensures you have well-rounded coverage.

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