Income Protection for Self-Employed

What is income protection insurance?

While you don’t have to present a doctor’s certificate to anyone if you work for yourself, being forced to take time off for months will probably affect your finances rather quickly. Not to worry, income protection insurance exists for just this kind of situation.  

Before we dive into the specifics of insurance as a self-employed contractor, it’s helpful to understand the basics. Income protection– sometimes referred to as IP – is a special type of life insurance product that may cover a portion of your income if you’re unable to work due to injury or illness. It can cover up to 70% of your income for the length of time specified in your policy, known as a benefit period. 

Income protection benefits for self-employed 

​​​If you’re an independent contractor, self-employed or a small business owner, you might not be able to rely on paid annual leave or personal leave to get you through periods when you’re not able to work. Having income protection can provide you with peace of mind, especially if you and your family relies on your income to cover monthly expenses.  

Income protection insurance can protect you by: 

• ​​​Providing regular monthly payments
• Covering expenses and debt repayments 
• Helping you to maintain your lifestyle even when you can’t work 

Helpful Tip:

​​Having a backup plan for your income is something worth considering, especially if you’re self-employed. While your income might stop while you take time off to recover, your expenses don’t, which is where income protection Insurance can come in handy.

Eliza Ryan

Senior Marketing and Growth Channels Manager, Lifebroker

How much will my income protection premium be? 

Your monthly income protection premiums depend on several factors, including:  

• a​​ge
• occupation
• lifestyle factors, like whether or not you smoke
• income
• medical history
• high-risk hobbies or sports  

But they’re not the only factors that affect your premium. The waiting period, benefit period and whether you choose variable, or variable aged stepped premiums will all impact how much you pay for income protection. Here’s how they work. 

Waiting period 

The waiting period is the amount of time you have to wait before the insurance benefits start after you become unable to work due to illness or injury. Most income protection policies offer a waiting period between 14 days and two years.  

As a general rule, a shorter waiting period typically results in higher premiums, while a longer waiting period lowers them. 

Benefit period

The benefit period refers to how long your monthly benefits will last while you’re unable to work due to illness or injury. Most income protection policies offer benefit periods from two to five years or up to a specific age (such as 65). 

Generally, the longer your benefit period, the higher your premiums will be.  

‘As a freelancer myself, my workload often changes depending on the needs of my clients, which ultimately affects my monthly income. Not to mention, I can’t fall back on paid sick leave or annual leave when I need to take time off. If only I’d made the most of these perks back when I was a salaried employee! For now, the best I can do is prepare for the unexpected, so you can bet I’ll be hunting around for an income protection policy that works for me.‘

Hannah Lovegrove
Freelance Writer for iSelect​

Accounting for fluctuating income 

When you’re self-employed, your income often fluctuates, which can make it difficult to account for these changes when it comes to taking out income protection.  

When it comes to taking out your own policy, your insurer may assess your income over a period of time to account for the fluctuations that often come with self-employment, depending on your policy. To determine your income, your insurer may take a range of different sources into account, including business profits and income details.  

It’s worth noting that each insurer will have its own process for determining benefits for self-employed individuals, so it’s important to familiarise yourself with your policy and PDS to understand the specifics. 

Exclusions and limitations 

Depending on your occupation, your income protection cover may come with additional limitations or exclusions. Alternatively, hazardous or high-risk jobs, like tree loppers or miners, may have to pay more for income protection cover. This is known as a loading. 

Exclusions, limitations and loadings differ across insurance providers and occupations, so be sure to check the PDS. There are some dangerous occupations that insurance companies will consider too risky to insure due to a greater risk of injury but this will depend on your individual insurer. 

Do I get income protection as part of my superannuation? 

You may already have default income protection as part of your superannuation. You should be able to check with your super fund to see whether you’re covered for income protection and how much cover you have. This insurance is typically only a specified amount and may not be enough to cover your personal circumstances, so be sure to check. 

But remember, if you’re self-employed, you’ll need to make your own super contributions. If you do have income protection as part of your insurance, your premiums will be taken from your super contributions.  

How to apply for income protection 

Applying for income protection insurance when you’re self-employed involves several steps. Here’s how the process usually works.

Step 3: Submit your application 

After you’ve compared providers and settled on a policy, it’s time to fill out the application form provided by the insurer. This can often be done online, over the phone or through a broker.  

Make sure you provide accurate and detailed information about your income, health, occupation and lifestyle. If you provide misleading information, you could risk having your cover cancelled or your claim declined. 

Step 4: Insurer assessment 

Based on the information you provided in your application, the insurer will assess your health and financial history. This is known as underwriting.  

As a self-employed individual, your insurer may review your business’s financial stability and consistency of income. 

Step 5: Policy decision 

Once your insurer completes their underwriting process, they’ll provide you with a policy offer outlining the terms, conditions and premium. Before accepting your policy, be sure to carefully review the policy details to make sure it meets your needs and expectations. If you agree with the terms, sign the policy documents and set up your premium payment arrangements. 

Step 6: Regularly review your policy 

It’s important to regularly review your policy to ensure it still meets your needs, especially if there are changes in your income or business circumstances. Be sure to adjust your coverage as necessary to maintain adequate protection. 

In some cases, you may find that your insurer no longer meets your needs, so you may need to start the research process again. 

If you’re self-employed and thinking about purchasing an income protection insurance policy, you’ve come to the right place. At iSelect, we’ve partnered with Lifebroker to make it easier for iSelect customers to compare income protection policies from a range of providers and apply for cover.