For sole traders and the self-employed
Income protection for the self-employed
No employer, no sick leave, no default cover. If you work for yourself, income protection is the safety net you have to build yourself.
Your income basis set correctly. The right waiting period. No jargon.
When you work for yourself, you are the safety net.
No employer, no sick leave, no default cover. Income protection is the net you build yourself, so a period off does not become a crisis.
The self-employed gap
No employer to fall back on
Income protection replaces a large part of your income, usually up to about 70%, if illness or injury stops you working. If you are self-employed, there is no employer sick leave and usually no default cover in super to fall back on. That makes income protection the safety net you have to arrange yourself, and getting the structure right matters more when the income is your own.
Why it matters more
What working for yourself changes
An employee often has sick leave and some default cover through super. A sole trader or self-employed person usually has neither. If you cannot work, the income stops, but the commitments do not. Income protection pays a monthly benefit while you are unable to work, so a period off does not become a financial crisis.
What you do not have
- No default coverMost employees have some cover through their super fund. Working for yourself, you usually do not.
- No sick leaveThere is no employer leave to bridge the gap between stopping work and a benefit starting.
- Income that variesEarnings move year to year, so how income is assessed at application and claim matters.
- The costs continueThe mortgage, the business costs and the household keep running even when the income stops.
1 in 5
income protection claims relate to mental ill health
Working for yourself carries its own pressures. Cover that recognises psychological as well as physical conditions is worth confirming, because mental ill health is behind a large share of claims across the industry.
Source: Council of Australian Life Insurers
The part that trips people up
How insurers assess self-employed income
For an employee, income is a salary. For the self-employed, insurers usually look at your earnings after business expenses, often averaged over one to three years. A recent dip or a growth year can change the figure, and the way you draw income from the business affects what can be insured. Getting the income basis right at application time is one of the main reasons advice pays off for the self-employed.
How the benefit is set
Agreed value vs indemnity
This decides how your monthly benefit is calculated, and what you have to prove at claim time.
Agreed value
Benefit fixed up front
- How the benefit is set
- Agreed when you apply, using your income proof at that point
- Proof at claim time
- Little or no income proof needed at claim
- Best suits
- Variable or hard-to-prove income (now mostly legacy cover)
- Availability
- Largely closed to new business since 31 March 2020
Indemnity
Benefit based on income at claim
- How the benefit is set
- Assessed at claim, using your income before you stopped work
- Proof at claim time
- You must prove your income at claim time
- Best suits
- Stable, easily proven income (the current standard)
- Availability
- The standard structure for new policies today
How it works
Waiting and benefit periods
With no employer sick leave to bridge the gap, the waiting period is a real decision for the self-employed: how long could your savings realistically last? The benefit period is how long payments continue, commonly two years, five years, or to age 65.
What it costs
Often more affordable than it looks
Premiums depend on the levers on the right. Cover held outside super is generally tax deductible, because the benefit is treated as replacement income, which can make it more affordable than it first appears. Tax depends on your situation, so confirm with your accountant. The Australian Government’s Moneysmart has a plain-English overview.
What shapes your premium
- Income and ageThe income you are insuring, how it is assessed, and your age when cover starts.
- Waiting and benefit periodsA longer wait or a shorter benefit period lowers the premium.
- Stepped or level premiumsHow the premium is structured over the life of the policy.
- Health and occupationYour medical history and how your work is rated for risk.
When you work for yourself, your income is the business.
Moshe Chaiton, Director & Principal Adviser
FAQs
Frequently asked questions
Can I get income protection if I am a sole trader?
Yes. Income protection is available to sole traders and the self-employed. How your income is assessed and evidenced differs from a salaried arrangement, which is one of the main reasons advice is worth getting from the start.
How is income protection calculated for self-employed people?
Insurers usually base it on your earnings after business expenses, often averaged over one to three years. The exact basis varies between insurers, so it is worth confirming how a given policy would treat your income.
Is income protection tax deductible for the self-employed?
Premiums for cover held outside super are generally tax deductible because the benefit is treated as replacement income. Tax depends on your situation, so confirm with your accountant.
What waiting period should a self-employed person choose?
That depends on how long your savings could realistically cover you, since there is no employer sick leave to bridge the gap before a benefit starts. A longer waiting period lowers the premium but means longer before payments begin.
Does income protection cover me if my business slows down?
No. Income protection responds to illness or injury that stops you working, not to a downturn in the business or a loss of clients. It replaces income lost to incapacity, not to trading conditions.
Related cover
The cover the self-employed lean on
For sole traders and the self-employed
Build the safety net your income needs
A no-obligation chat with an adviser who sets your income basis correctly, compares the market, and matches the waiting and benefit periods to how you actually work. No separate advice fee for our advice.