Self-Employed Income Protection in Australia | 2026 Guide
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Can Self-Employed People Get Income Protection?
Yes, if you’re self-employed, you can generally apply for income protection. However, insurers will generally assess your income differently than they would for someone with conventional employment. Freelancers, contractors or business owners can apply for income protection. Generally, you’ll need to work in a paid environment for at least 20 hours per week to qualify, depending on the insurance brand.
An income protection policy could help cover some of the gaps if you’re unable to work due to illness or injury, since you typically don’t have access to personal leave, sick leave, or workers’ compensation when you’re self-employed.
How Does Income Protection Work If You’re Self-Employed?
When you apply for self-employed income protection, the application process is typically similar to most other applications. You’ll be asked to provide the insurer with your annual personal exertion income. When you’re self-employed, this is generally calculated based on your personal earnings and not on the total turnover of your business.
If you then go on to make a claim in the future, the insurer will generally look at the income you earned before your claim to calculate the benefit. Because fluctuating income is harder to calculate, insurers may use your average income over several years. It’s also important to note that most income protection policies for self-employed individuals are indemnity-based, which means your benefit amount is calculated on your income at the time of making a claim and not based on what you earned at the time of taking out cover. It’s a good idea to have documents like tax returns and profit and loss statements ready for your insurer to review.
How Do Insurers Calculate Self-Employed Income Protection?
Typically, your income protection premium will be influenced by several factors, including:
- The benefit amount you receive
- The waiting period you’ve selected
- The duration of your benefit period
- The type of policy you’ve opted for
- Whether you’ve opted for variable or variable age-stepped premiums
- Any additional features added to your policy
- Your age, gender, and location
- Your smoking status
- Your general health and lifestyle factors
- Health rewards programs
What Does Self-Employed Income Protection Cover?
Income protection for the self-employed will generally provide you with a monthly benefit to replace up to 70% of your income. This allows you to focus on your recovery. Income protection typically covers the following:
- Total disability: If you become ill or are injured and are totally unable to return to work, a total disability benefit could pay you a benefit monthly in arrears at the end of your waiting period. This benefit will generally only be paid out if you are not working in any capacity, you have followed the advice and treatment plan of your medical practitioner, and you are unable to perform all of the duties you need generate income from your own occupation.
- Partial disability: This benefit generally pays out a benefit if you are partially unable to return to work after the end of the waiting period. Typically, this benefit is paid out if you return to work in a reduced capacity following the advice of your medical practitioner. You’ll generally also need to prove to the insurer that you are earning less than before by showing that you are unable to work for more than 80% of your usual working hours in the 12 months before the start of your waiting period.
- Recurring disability: Some income protection policies offer a recurring claim benefit that may allow you to forgo the waiting period if you become totally or partially unable to work due to the same or a related illness or injury that led to your original claim.
What Isn’t Covered?
When you apply for income protection, it’s generally a good idea to familiarise yourself with the exclusions on your policy so that you are fully aware of what is and is not covered. Common income protection exclusions include:
- Business expenses
- Being made redundant, not being able to find work for reasons not related to your illness or injury, or any business downturns
- Any claims resulting from intentional, self-inflicted acts.
- Normal, uncomplicated pregnancy, miscarriage or childbirth
- Your cover may be restricted or limited, depending on the policy, if you have pre-existing conditions
- Claims relating to war or an act of war
- Any claims resulting directly or indirectly from participating in criminal activity
- Being restricted, banned or disqualified from performing some or all of the duties of your working occupation
How Much Income Protection Can You Get?
The maximum income protection monthly benefit that you’ll typically be able to claim is up to 70% of your income prior to you becoming ill or injured. This benefit is generally paid monthly in arrears after you complete the waiting period defined by your policy and can’t return to work. When you make a claim on an income protection policy, you’ll generally receive a monthly benefit for the length of your benefit period or until you no longer meet the eligibility requirements.
Understanding Waiting and Benefit Periods
| Waiting Periods | Benefit Periods | |
|---|---|---|
| What is it? | The period of time before you become eligible to claim. | The maximum period that you can receive payments on your income protection claim. |
| When does it start | When you become unable to work due to an illness or injury following the advice of a medical practitioner. | Starts once the waiting period ends and you are still unable to work. Monthly benefits are generally paid out 30 days in arrears after your waiting period ends. |
| Common Options | 14 days 30 days 60 days 90 days 180 days 1 year 2 years | 2 years 5 years To age 65 To age 70 |
| Important considerations | Shorter waiting periods may allow you to receive monthly benefits sooner; however, they often come with higher premiums. Longer waiting periods, on the other hand, may reduce premium costs. Compare your options to find the right waiting period for you. | Typically, income protection policies with longer benefits could help provide you with extended financial security; however, they are often more expensive than policies with shorter benefit periods. |
How Much Does Self-Employed Income Protection Cost?
Several factors generally influence the cost of your income protection policy. These typically include your monthly benefit, benefit period, the waiting period you’ve opted for, and the type of policy you apply for. Your premium is also generally affected by the premium structure you’ve chosen, any added features and benefits on your policy, and your occupation, age, gender, location, and other health and lifestyle factors.
It’s generally a good idea to compare all of your options to find an income protection policy that matches your requirements. Take a few minutes to request a quote and one of our specialist life insurance brokers will get back to you.
Income Protection vs Business Expenses Insurance
There is a difference between self-employed income protection and business expenses cover. Income protection is generally there to cover your personal income while you’re unable to work due to illness or injury. Business expenses insurance, on the other hand, helps you cover the fixed running costs of your business if you can’t work.
| Feature | Income protection insurance | Business expenses insurance |
|---|---|---|
| What it protects | Your personal income | Your business overheads |
| Who receives the payment | You | Your business |
| Who it may be suited to | Freelancers, independent contractors, sole traders | Business owners |
| Main purpose | Support your personal living costs like mortgage payments, groceries, etc. | Help keep your business running by paying for rent, utilities or staff wages. |
| Typical benefit period | 2, 5, 6 years or up to age 65 or 70 | Usually up to 6 or 12 months |
Is Self-Employed Income Protection Tax Deductible?
Yes, if you hold your income protection policy personally and your premiums aren’t paid through your Super, then your premium may be tax deductible. Generally, income protection’s purpose is to replace your income, which is why the ATO typically allow deductions for policies that protect your ability to earn an income.
However, income protection inside Super is often treated differently because you pay the premiums from your Super balance, not your personal income. Because tax rules vary, it’s important to confirm the details with a tax adviser or your accountant before claiming a deduction. It’s generally also a good idea to refer to your Product Disclosure Statement to get a clear understanding of what may apply to your circumstances.
How to Compare Self-Employed Income Protection Insurance
The best income protection for self-employed people is typically a policy that suits your personal circumstances. It’s often a good idea to look at more than just the price. Compare different definitions and policy features and look at the differences between your waiting and benefit options. You may also want to consider the claims support different insurance providers offer. Alternatively, fill in the quote form below to compare income protection options.
Frequently Asked Questions and Answers
Can a sole trader get income protection?
Yes, sole traders can usually apply for income protection. Typically, you won’t have access to sick leave or personal leave if you’re self-employed, and an income protection policy can help you financially when you can’t work.How do self-employed people protect their income?
As someone self-employed, there are several steps you can take to protect your income. Building personal savings, buying an income protection policy, diversifying your cash flow, and separating personal and business income are all ways to keep your income secure.Is it worth taking out income protection?
Income protection is generally a good option for anyone who relies on their income to cover living expenses. It may also be worth considering income protection if you have financial dependents. Income protection may not be as necessary if you have significant personal savings to fall back on if you are unable to work.How long can you stay on income protection?
Typically, you’ll be able to claim the monthly benefit on your income protection policy for the duration of the benefit period, until you no longer meet the eligibility requirements or your policy expires.Can I earn money while on income protection?
Whether you’ll be able to earn income while you are receiving a monthly benefit on your income protection policy depends on the definitions of your cover. If you are on a partial disability claim, you may be able to return to work in a limited fashion. However, if you’ve made a total disablement claim on your income protection and you return to work, you will typically cease to meet the eligibility requirements. You will no longer receive a monthly benefit.
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Why won’t the system accept the amount I place in the income box?
Hello Robin,
Thank you for your feedback. I have reached out to our IT team to look into it.
In the meantime, please contact us for immediate assistance on 1300 135 205 or send us an email with the variables you tried to fill in and we can provide you with a quote.
What about when you’re over 65 YRS?
Hi Hil.
From your comment, it seems you are referring to the maximum entry age for Income Protection Insurance and the income protection benefit period.
Generally, most Australian insurers only offer income protection up to age 59 or 65. However, select insurers do offer income protection at older ages.
Income protection expiry ages will also differ depending on your occupation. Generally, Blue Collar occupations expire at age 65, while White Collar might only expire at age 70.
Both income protection and life insurance for over 65’s must be carefully considered.
Because I’m not aware of your specific circumstances (age, occupation etc.) I won’t be able to tell you what would be your best option. To help you with your queries please fill in the quote form above or alternatively give us a call on 1300 135 205.