At a glance:

  • If you are a self-employed person in Australia, you need an income protection insurance plan to mitigate the hazards incurred due to income loss.
  • This is a must-have, especially if you have no sick leaves or medical benefits.
  • The various factors one must consider before getting income protection insurance are the waiting period, coverage limit and policy exclusions.



You’ve just hit your highest-paying month as a freelancer, and you are over the moon. Your calendar is solid booked for the next three months. But the next thing you know, you wake up sick.

You are in no shape to work, and you are forced to take a break. But there’s rent to be paid and medical bills to take care of. Besides, you need time to heal and regain your health. There’s no boss to fire you. But you still need to work to be able to afford to fall sick.

Self-employment offers perks like ownership over one’s time and the flexibility to work from anywhere. However, the uncertainty of income can be daunting. Plus, there’s hardly any hedge against unfortunate events and sickness.

Unlike traditional employees who have access to benefits like sick leave and employer-provided insurance, self-employed individuals bear the sole responsibility of protecting their income and financial stability.

That’s why if you are a self-employed solopreneur or a freelancer, you absolutely need income protection insurance. In this article, we will explore the importance of income protection insurance for self-employed individuals, the unique challenges they face, and how this insurance can provide much-needed financial safety and peace of mind.



The Self-Employed Landscape


It takes a lot of courage to go after your dreams on your own and be willing to sacrifice the comfort of a safe, cushy job. You don’t deserve to be anxious or insecure over your finances just because you’ve chosen to create your path. You may be a freelancer, a consultant, or a first-time business owner; it’ll take you some time to figure out your cash flow and build your

business to a point of sustainability. While the autonomy and potential for higher earnings are attractive, you may encounter challenges not typically experienced by traditional employees.

To begin with, you don’t shut shop. Neither physically nor mentally. You are always on. And you are too stressed and too stretched to consider sick leaves or employer-provided benefits for yourself. If you fall ill or suffer an injury, everything stops, and every day, you may face a significant loss of income without any safety net. If you are used to living a certain kind of lifestyle, it can be additionally hard to predict and plan for unexpected disruptions.

An income protection insurance plan is a one-stop solution to all that unnecessary stress and anxiety you have around income loss.


Importance of Financial Stability for the Self-Employed


Financial stability is paramount for anyone wanting to experience peace and safety in their lives. But it holds particular significance for the self-employed. Unlike salaried employees, self-employed individuals don’t have the security of a fixed income. Your livelihood depends on how consistently you show up and deliver successful services or products. The success of your business or the project is crucial to income generation. But life happens, and not all days are the same.

As a self-employed person, it’s often harder to keep up the hustle every day. This makes it all the more important to have a robust financial plan and safety measures in place to protect your income during challenging times. Not just that, you also need a consistent income to stay committed to your saving goals for plans. That makes income protection insurance an absolute must for anyone self-employed.


Also Read: How income protection works for part-time and casual workers



Why Consider Income Protection Insurance?


Mitigating Income Loss


This type of insurance acts as a safety net, providing a regular income in case of illness or injury. This helps bridge the financial gap and ensures self-employed individuals can meet their financial obligations even when they are unable to work.


Continuity of Business Expenses


If you, as a self-employed person, are unable to work due to injury or sickness, your business should not collapse. Maybe you have subcontractors you need to pay or office utilities and bills that are due; you can’t dip and must not dip into your savings. It puts you and your family members in a very tight spot and leads to resentment. Income protection insurance can cover these ongoing costs like office rent, utilities, and loan repayments, maintaining the cash flow in your business and preserving its stability. You’ll never feel on the spot and embarrassed once you have an income protection coverage plan to back you up.


Support for Dependents


Like anyone else, self-employed people have dependents too. You have family goals and dreams, too. Planning to get married or start a family should not scare you just because you are a self-employed person. Income protection insurance provides you that peace of mind and everyone else the reliability they need from you as the bread earner.


Tailored Coverage


Income protection policies can be customised to suit your needs, taking into account specific income levels, expenses, and personal circumstances. Maybe you only need a certain amount of coverage or for certain periods of the year. Income protection insurance gives you the flexibility to choose and invest accordingly.



Evaluating the Cost-Benefit of Income Protection Insurance


Some self-employed individuals may hesitate to invest in income protection insurance due to concerns about the cost of premiums. However, it’s essential to consider that having to put aside a certain premium is any day better than scrambling at the last minute for funds in case of any emergency leading to income loss. Don’t let the premium payment dissuade you from giving yourself a sense of safety and security. The peace and predictability far outweigh the discomfort of premium payments each month.



How Does Income Protection for the Self-Employed Work?


Income protection insurance for the self-employed functions similarly to policies designed for traditional employees. The policyholder pays regular premiums to the insurance provider, and in the event of an illness or injury that prevents them from working, they can make a claim. The insurance company then provides regular payments, usually a percentage of their pre-illness or pre-injury income, until they can return to work or until the policy term ends.

You’ll need to submit proof of your income and tax returns. Your insurance cannot surpass your actual income. Be aware of your waiting period and choose one based on your requirements. It can be as little as 14 days to a maximum of 90 days. The benefit period is how long you will be receiving the payment. This can be 1, 2, or 5 years, depending on your policy.


What works and what does not for self-employed individuals regarding income protection coverage
Source: Freepik


Even though there are hundreds of insurance providers across Australia, Aspect Underwriting stands out from the rest. At Aspect Underwriting, we pay 85% of your income if you suffer an illness or injury, while other insurance providers only offer 75%.

Dealing with Aspect is hassle-free – no phone calls or lengthy meetings. You can get an income protection quote from the website and get covered within minutes. Get an income protection quote from Aspect Underwriting and secure your finances today.



Key Factors to Consider When Choosing The Right Income Protection Insurance


Several factors shape your income protection insurance, and those factors require your proper attention. Find out what you need to consider while choosing the right insurance coverage that ensures you are adequately covered for unprecedented events.


Waiting Period


The waiting period refers to the time between making a claim and receiving the first benefit payment. Self-employed individuals should consider their financial reserves and ability to cover expenses during this waiting period when selecting the appropriate waiting period for their policy.


Benefit Period


The benefit period determines how long the insurance company will provide payments after the waiting period. Self-employed individuals should assess their potential recovery time and select a benefit period that aligns with their needs.


Coverage Limit


Income protection insurance policies often have a coverage limit, capping the maximum amount a policyholder can receive during the claim period. Self-employed individuals need to consider their income level and choose an appropriate coverage limit that meets their financial requirements.


Policy Exclusions


Like any insurance policy, income protection insurance may have certain exclusions. Self-employed individuals should review these exclusions carefully to ensure they understand what circumstances may not be covered.


Income protection insurance is a crucial tool for self-employed individuals to safeguard their financial stability and protect against the uncertainties of self-employment. The absence of sick leave and employer benefits makes it all the more necessary to insure your income. This can provide financial safety, support business continuity, and offer peace of mind during challenging times. By considering income protection insurance, you can have a robust financial plan and ensure that you have the necessary support in place to focus on your entrepreneurial endeavours with confidence. Aspect Underwriting’s superior coverage and user-friendly process make it an excellent choice for self-employed individuals seeking comprehensive income protection insurance.

Get the quote now!





Is income protection insurance necessary for all self-employed individuals?


While income protection insurance is not legally mandatory, all self-employed individuals should consider it as a vital aspect of their financial planning. Given the lack of sick leave and employer benefits, income protection insurance provides essential financial security during periods of illness or injury.


What types of earnings are recognised as income for income protection insurance?


Income protection insurance typically considers all earned income, such as salaries, wages, and net profits from self-employment. Additional sources of income, such as rental income or investments, may not be covered unless specified in the policy.


What is considered income for a self-employed person?


For self-employed individuals, income includes the profits generated from their business activities after deducting business expenses. It is essential to accurately assess and declare one’s income when applying for income protection insurance.


Is my premium tax-deductible?


The tax deductibility of income protection insurance premiums may vary depending on the local tax laws. In some regions, premiums for income protection insurance are tax-deductible for the self-employed as they are considered a necessary business expense. However, it’s crucial to consult with a tax professional to understand the specific regulations in your location.


Can I claim income protection insurance as a tax-deductible expense if I’m self-employed?


Yes, income protection insurance premiums are tax-deductible for self-employed individuals in Australia, as they are considered a necessary business expense. However, this may vary depending on the local tax laws, and it is advisable to consult with a tax professional to determine your eligibility.


I’m a small business owner; are there any other special things I need to consider?


Small business owners should evaluate the level of coverage they need based on their business’s specific financial needs and potential risks. It’s essential to consider both personal income replacement and the continuity of the business’s financial obligations when choosing an income protection insurance policy.


Are there occupations that can’t be insured?


Some high-risk occupations might have limitations or exclusions when it comes to income protection insurance. Insurance providers may assess the risk associated with certain occupations and either offer coverage with specific terms or exclude coverage altogether. Individuals in high-risk professions need to inquire with insurance providers about available options and potential exclusions.

Mike Wallis

Mike has over 25 years experience, having spent his first seven years working as a Broker at Jardine Lloyd Thomson in Melbourne and in 2002 was transferred to JLT’s Accident and Health Department in London. For four years (2002 – 2005) Mike was a specialist A&H Lloyd’s Broker and during this time developed excellent relationships with the Lloyd’s A&H underwriting fraternity. In 2006 he returned to Australia in a senior broking position with overall responsibility for Placement Strategy, including the implementation of underwriting facilities and the various authorities granted by Lloyd’s. Mike was the underwriter at two specialist Underwriting Agencies prior to founding Aspect Underwriting in 2016.