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Income Protection for Self-Employed
Income Protection for Self-Employed
Written by
Hannah Lovegrove
Edited by
David Rayfield
Reviewed by
Eliza RyanEasily compare income protection quotes
Save time and effort by comparing income protection with iSelect’s trusted partner Lifebroker
What is income protection insurance?
Long story short
Income protection can cover up to 70% of income for the self-employed
Get a portion of your income covered if illness or injury stops you from working, for the benefit period you choose.
Shorter waits and longer benefit periods generally cost more
Waiting periods can range from 14 days to two years, and benefit periods from two to five years or up to age 65.
Your superannuation might include income protection, but it may be limited
Check your super fund for income protection insurance. If you’re self-employed, you’ll need to make your own super contributions for cover to apply.
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.
What are the benefits of income protection insurance for the 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 rely 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 is income protection calculated for the self-employed?
Your monthly income protection premiums depend on several factors, including:
- age
- 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
How do insurers account 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.
What exclusions apply to income protection insurance for the self-employed?
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 do I 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 1: Assess your needs
To begin with, you’ll need to determine the level of coverage you need based on your income, monthly expenses and financial obligations. Decide on the waiting period (time before benefits start), the benefit period (how long you’ll receive payments) and how you’d like to pay your premiums (variable age-stepped and variable premiums).
You can use a calculator to work out how much you may need.
Step 2: Research different policies
Once you have a good idea of your insurance needs, you can compare different insurance providers. It can be worth looking for insurers that offer income protection for self-employed individuals. Consider comparing policies based on factors such as, coverage, premiums, exclusions and additional features.
You can compare income protection insurance policies with us at iSelect through our life insurance partner, Lifebroker.
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.
Where can I find and compare income protection?
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.
Easily compare income protection quotes
Save time and effort by comparing income protection from a range of policies and providers with iSelect’s trusted partner Lifebroker
iSelect’s partnered with Lifebroker (AFS Licence number: 400209) to help you compare a range of income protection Insurance policies. iSelect earns a commission from Lifebroker for each customer referred through the website or contact centre. Lifebroker do not compare all life insurers or policies in the market.
iSelect Life Pty Ltd – ABN 89 124 304 347, AFS Licence Number 331128. Any advice provided by iSelect is of a general nature and does not take into account your objectives, financial situation or needs. You need to consider the appropriateness of any information or general advice iSelect gives you, having regard to your personal situation, before acting on iSelect’s advice or purchasing any policies. You should consider iSelect’s Financial Services Guide which provides information about iSelect services and your rights as a client of iSelect.