Income Protection Insurance for the Self-Employed

When you’re working for yourself, your income is everything.  Unlike regular employees who get sick leave and other safety nets, you’re on your own when illness or injury strikes.

That’s where income protection for self-employed workers comes in. Here, we’ll look at how income protection insurance works, who needs it, and how to find the right policy to suit your situation.

What is income protection insurance?

Income protection insurance pays a portion of your income if you’re unable to work due to illness or injury. It replaces some of your pre-tax pay for a set period of time, helping you keep up with everyday living costs while you recover.

NobleOak’s Income Protection Insurance covers up to 70% of your regular income to help support you and your family with essential living expenses while you’re off work. When you’re self-employed, that can be a real lifeline.

Why income protection is important for the self-employed

Working for yourself comes with different risks than a job where you work for someone else. Here’s why income protection insurance for you as a sole trader or business owner can be important.

• No sick leave or employee benefits: You don’t get paid sick days, annual leave, or workers’ compensation like regular employees do.
• Your income can be up and down: Earnings might be great one month and not so good the next, making it tough to save enough for emergencies.
• Your expenses don’t take a break: Mortgage payments, rent, business costs, and family expenses keep coming whether you’re working or not.
• You’re flying solo: There’s no boss or HR team to help you out when things get tough.
• It all depends on you: You’re often the main (or only) income earner for your family and business.

NobleOak’s recent Pulse Report which surveyed over 1,000 Australians found that many Australians are currently feeling financial pressure. Only 1 in 3 Australians feel financially prepared if they were to lose their income for three months or more. For the self-employed, that safety net can be even thinner.

Who needs it?

If you earn your income outside of traditional employment, taking out income protection insurance could help safeguard your finances. Here’s who should consider cover:

• Sole traders:  When you are the business, your income takes a direct hit any time you can’t work.
• Freelancers: Without a regular paycheck, you need protection against income loss that could go on for months.
• Gig workers: Whether you’re driving for Uber or delivering food, your earning power depends on being physically able to work.
• Contractors: Project work means no guaranteed invoices coming in when you’re off the job.
• Consultants and professionals: Your knowledge and skills are your income source, and being unwell could stop you from being able to service clients.
• Small business owners: Even with staff, your business likely needs you there to keep the money coming in.

At NobleOak, we’ll assess your application through our standard unwriting assessment, which means that you’ll have a clear understanding of what’s covered from day one. Plus, if you run your own business, you could look at adding Business Expenses Insurance to your income protection insurance. This helps cover your business’s fixed running costs when you can’t work.

Taking out some of the best income protection for self-employed workers can give you peace of mind, knowing you’re ready if life throws you a curveball.

Eligibility criteria for the self-employed

To qualify for income protection insurance for self-employed workers, insurers may require you to meet certain criteria, such as:

• Minimum working hours: You generally need to work at least 20 hours per week in paid self-employment. This shows insurers that you’re genuinely earning income from your work, not just doing it as a hobby or side gig. If you work less than this, you might still qualify for a limited policy.
• Established income history: Most insurers want to see that you’ve been earning consistently for 12-24 months. This helps them understand what your usual income looks like.
• Australian residency: You need to be an Australian resident or hold an appropriate visa that allows you to work here long-term. Temporary visa holders might face restrictions or need special arrangements.
• Age requirements: Most policies are available from age 18 to 65, but this varies between insurers. The sooner you apply, the lower your premiums will typically be.
• Health assessment: You may go through medical underwriting to assess your current health and your occupation. This might involve answering detailed health questions or providing reports from your doctor. Your occupation also matters here – riskier jobs mean more thorough health checks.
• Financial verification: You may need to provide solid documentation proving your income level. This is often the trickiest part for self-employed people since you don’t have regular payslips.

Even if you don’t tick every box perfectly, you might still get coverage. NobleOak’s team understands the challenges self-employed people face and can work with you to find a policy that fits your circumstances.

How insurers verify a self-employed person’s income

Unlike employees who receive regular payslips, self-employed individuals like sole traders and contractors don’t have standard income documentation. However, insurers still need to confirm your earnings to determine how much income protection coverage you can receive and calculate your premium costs.

Insurers typically request:

• Personal or business tax returns, usually the past 1-2 years’ worth
• Quarterly reports like Business Activity Statements (BAS)
• Bank statements
• An accountant’s letter

Income protection policy features to consider 

When comparing policies, it’s important to look beyond just the price. It’s important to understand the structure of each income protection policy, so you’ll know if it suits your budget and coverage needs. Here are some key features to keep in mind:

• Benefit amount: This is the portion of your income that the income protection policy will replace if you make a successful claim. Most insurers offer up to 70% of your pre-tax income. Think about how much you’d need to cover essential expenses like rent, groceries, and bills if you couldn’t work. However, bear in mind that the more cover you want to secure, usually, the more you will pay for your premium.
• Waiting period: This refers to the length of time you are willing to wait after a sickness or injury occurs before your payments begin. It could be 30, 60, 90 or even 720 calendar days depending on the insurer and product you choose. Choosing a longer waiting period usually lowers your premium, but you’ll need to rely on your savings for longer.
• Benefit period: How long would you need your policy to provide benefits if you were unable to work? You might choose a shorter benefit period, e.g. two or five years, or a longer one that covers you to a certain age. The longer the benefit period, the higher the premiums, but the greater the long-term security. Often people decide based on their current age and the number of years they intend to continue to work for.
• Offset clauses: Some policies include offset clauses, which means your benefit might be reduced if you receive workers’ compensation, Centrelink payments or even payouts from other insurance policies. It’s worth checking how this works with your chosen insurer.
• Additional benefits: Some income protection policies come with extras to support your recovery. These include partial disability benefits if you can return to work part-time, recurrent claim provisions if the same illness or injury flares up again or rehabilitation help.
• Variable age stepped vs level premiums: Variable age stepped premiums start off lower and increase as you age, while level premiums remain the same for the life of the policy (aside from CPI adjustments). Each has pros and cons depending on your age, budget and how long you plan to hold the cover.  Most Australian insurers now only offer stepped premiums to new policy holders.

Challenges faced by the self-employed

Getting income protection for business owners and other self-employed workers isn’t always straightforward. While the coverage can provide peace of mind, there are some hurdles you might face that regular employees don’t have to deal with. Understanding these challenges upfront can help you prepare for the application process.

Self-employed individuals face some unique challenges when it comes to income protection for contractors and other non-traditional workers:

• Unpredictable income: When your earnings go up and down from month to month, insurers find it harder to work out what your ‘usual” income is. They might use an average over 12-24 months, but this can be complicated if you’ve had a particularly good or bad year. It also means when you make a claim, there might be more back-and-forth about how much you should receive.
• Job exclusions or higher premiums: If your occupation involves high-risk environments or specialised skills, insurers may apply exclusions or charge higher premiums to account for the increased risk of injury or illness. It’s worth checking how your job classification affects your cover.
• Longer process: Since you don’t have an employer to verify your work status or provide payslips, the underwriting process may take longer. You may be asked to submit additional financial documents to confirm your income and job role.
• In-depth application: The application for income protection for self-employed workers is more complex than it is for regular employees. You’ll need to provide more financial documents and answer detailed questions about your work.

Don’t let these added requirements put you off. Insurance providers understand the unique needs of self-employed workers and will typically guide you through the application process step by step.

At NobleOak, all policies are fully underwritten at the time of application. While this involves more detailed questions upfront, it means you’ll know exactly what is and isn’t covered before you purchase your policy. This way, you won’t have surprises when it comes time to make a claim.

Learn more about the benefits of fully underwritten life insurance.

Is income protection insurance tax-deductible for the self-employed?

Income protection insurance premiums are generally tax-deductible for self-employed business owners. This means you can claim the cost of your premiums against your business income, reducing your overall tax liability.

However, there’s an important trade-off to consider. While the premiums are tax-deductible, any benefits you receive from the policy will be treated as taxable income.

The tax treatment can vary depending on your specific circumstances and business structure, so consult with your accountant or tax adviser to understand how income protection fits into your overall tax strategy.

Award-winning income protection insurance

Don’t leave your income to chance. Income protection for freelancers and sole traders can be essential financial protection for you and your family.

NobleOak’s award-winning income protection insurance is designed to support self-employed Australians when they need it most. Our fully underwritten approach means you’ll know exactly what’s covered from day one, giving you peace of mind that your claim would be paid.

Ready to protect your income? Learn more about our income protection insurance with NobleOak or start your quote today to see how affordable it can be.