Self-employed? Discover why traditional insurance often fails sole traders and contractors, plus strategies to get better coverage at lower rates.
Complete guide to life insurance in Australia covering types, costs, and how to apply
Business protection guide: key person insurance coverage, tax treatment, and when your business needs it
Life insurance tax deductibility explained: which policies are deductible and ATO rules for 2026
If you're self-employed - whether as a sole trader, contractor, freelancer, or small business owner - your insurance needs are fundamentally different from a typical employee's.
Here's the uncomfortable truth: the Australian insurance system was designed around employees. It assumes steady incomes, employer super contributions, and predictable work patterns. When you step outside that model, gaps appear everywhere.
Consider what happens when an employee gets sick or injured:
Employee (PAYG):
Self-Employed Person:
This isn't meant to discourage you. Self-employment offers extraordinary freedom and financial opportunity. But it requires a more deliberate approach to insurance than simply ticking the box at your super fund.
Most self-employed Australians are underinsured by $200,000 to $500,000 compared to their employed counterparts. Here's why.
An employee earning $100,000 receives $11,500 in super contributions annually (at 11.5% as of 2026). Over a 30-year career, that's $345,000 in contributions alone - not counting investment returns.
If you're self-employed and not making equivalent contributions, you're building a significant retirement gap. More importantly, the default life and TPD cover in your super fund is likely based on a much lower balance than it should be.
When applying for income protection, insurers calculate your benefit based on provable income. This creates three challenges for self-employed applicants:
1. Aggressive Tax Minimisation Works Against You
Every legitimate deduction you claim reduces your taxable income - and your insurable income. If your business turns over $180,000 but your taxable income is $75,000 after deductions, most insurers will base your coverage on the $75,000 figure.
2. Variable Income Creates Averaging Issues
Insurers typically look at your last 2-3 years of tax returns. If you had a great year followed by a tough year, they'll often use the average - or worse, the lower figure.
3. New Business = Limited Options
If you've been self-employed for less than 12-24 months, many insurers won't offer income protection at all. Others will limit benefits or charge significant loadings.
Employees in Australia are covered by mandatory workers' compensation insurance. This provides weekly payments of up to 95% of pre-injury earnings for work-related injuries.
Self-employed people generally can't access this system (with some exceptions like owner-drivers in certain states). You're entirely responsible for your own coverage.
Our advisers understand the unique challenges of insuring variable income. Get tailored quotes that reflect your real situation.
Request Free AssessmentAs a self-employed Australian, you have access to several types of insurance. Here's how each one protects different risks.
What it does: Pays a lump sum to your nominated beneficiaries if you die or are diagnosed with a terminal illness.
Why self-employed people need it:
Typical coverage: 10-15x your annual income, plus debts
Cost example: A 40-year-old male non-smoker might pay $85-110/month for $1 million in cover.
What it does: Pays a lump sum if you become totally and permanently unable to work.
Critical distinction for self-employed:
There are two definitions of TPD:
Example: A self-employed electrician who loses use of their hands might be able to work as a sales manager or consultant. Under "Any Occupation" TPD, they might not receive a payout. Under "Own Occupation," they would.
The problem: Most super funds only offer "Any Occupation" TPD. Self-employed people should strongly consider retail "Own Occupation" cover.
Cost example: A 40-year-old might pay an additional $40-60/month for $500,000 Own Occupation TPD.
What it does: Replaces up to 75% of your income (some policies up to 85% with agreed value) if you can't work due to illness or injury.
Critical features for self-employed:
Agreed Value vs Indemnity:
Waiting Period: The period before benefits start. Options typically range from 14 days to 2 years.
Benefit Period: How long payments continue.
Cost example: A 40-year-old earning $100,000 might pay $180-280/month for $6,250/month benefit (75% of income) with 90-day wait and to-age-65 benefit period.
What it does: Pays a lump sum if you're diagnosed with a specified serious condition (heart attack, stroke, cancer, etc.).
Why it's valuable for self-employed:
Covered conditions typically include: Cancer, heart attack, stroke, coronary artery bypass, major organ transplant, kidney failure, and approximately 40-50 other conditions depending on the policy.
Cost example: A 40-year-old might pay $80-120/month for $300,000 trauma cover.
What it does: Protects your business if a critical person (often you, the owner) dies or becomes disabled.
Two main types:
Revenue Protection:
Loan Protection:
Cost example: Depends on sum insured and key person's age/health. Often structured as additional life/TPD cover owned by the business.
What it does: Covers your fixed business expenses if you can't work due to illness or injury.
What it covers:
Why it matters for self-employed: These expenses continue even when you're not earning. Without cover, you might return from illness to find your business has collapsed.
Typical coverage: Up to $20,000/month in expenses for up to 12 months.
Cost example: $50-100/month for $10,000/month in business expenses cover.
| Feature | Typical Employee (PAYG) | Self-Employed / Contractor(Recommended) |
|---|---|---|
| Income when sick | Sick leave covers 2-4 weeks | Income stops immediately |
| Super contributions when sick | Employer continues contributions | No contributions during illness |
| Work injury coverage | Workers' comp covers work injuries | No automatic coverage |
| Default life insurance | 2-4x salary via super (automatic) | Often inadequate super cover |
| TPD definition available | Any Occupation (via super) | Own Occupation (retail only) |
| Income protection access | Easy access via super or retail | Harder to qualify, higher premiums |
| Business debt protection | Personal guarantees uncommon | Often personally liable for debts |
| Tax deductibility of premiums | Limited (super contributions only) | 100% for income protection outside super |
| Group discount pricing | Yes - employer group schemes | No - individual pricing applies |
Self-employed individuals need proactive insurance planning to match employee-level protection
Standard insurance calculators don't work well for self-employed people. Here's a framework that accounts for business realities.
Method A - For Established Businesses (3+ years):
Average the last 3 years of taxable income
+ Add back legitimate business expenses that would stop if you couldn't work
= Insurable Income
Example:
Year 1 taxable: $85,000
Year 2 taxable: $95,000
Year 3 taxable: $78,000
Average: $86,000
Add back: Car lease ($12,000/year) - stops if you're not working
Add back: Tools/equipment ($6,000/year) - stops if you're not working
Don't add back: Rent ($24,000/year) - continues regardless
Insurable Income: $86,000 + $12,000 + $6,000 = $104,000
Method B - For Newer Businesses (1-3 years):
Focus on demonstrating income trajectory. Gather:
Outstanding business debts (personally guaranteed): $________
Personal mortgage: $________
Other personal debts: $________
Income replacement (annual income x years until dependents independent): $________
Children's education fund: $________
Emergency fund for family: $________
Funeral and estate costs: $________
TOTAL NEEDS: $________
Minus existing assets/cover: $________
LIFE INSURANCE REQUIRED: $________
Worked Example - Sarah, Freelance Graphic Designer:
Most policies cover 75% of your income, with some offering up to 85% on agreed value policies.
Monthly income: $8,000
Maximum IP benefit (75%): $6,000/month
Consider:
- Does this cover your essential personal expenses?
- Do you need separate business expenses cover?
- How long could you survive on savings (determines waiting period)?
Consider what you'd need if you could never work in your occupation again:
Typical TPD sum insured: Often the same as life insurance, or 70-100% of it.
If your income fluctuates year-to-year, 'Agreed Value' income protection is essential. It locks in your benefit at application time based on your best recent income. 'Indemnity' policies calculate benefits at claim time - potentially catching you in a down year and leaving you severely underinsured when you need it most.
One significant advantage of being self-employed: income protection premiums are 100% tax-deductible when held outside superannuation.
| Insurance Type | Held Outside Super | Held Inside Super |
|---|---|---|
| Income Protection | 100% deductible | 15% tax on contributions used for premiums |
| Life Insurance | Not deductible | 15% tax on contributions |
| TPD Insurance | Not deductible | 15% tax on contributions |
| Trauma Insurance | Not deductible | Cannot be held in super |
| Business Expenses | 100% deductible | Not applicable |
Marcus, Sole Trader, $120,000 taxable income:
Income Protection premium: $3,600/year Marginal tax rate: 37% (plus 2% Medicare)
Tax saving: $3,600 x 39% = $1,404/year
Effective cost of income protection: $3,600 - $1,404 = $2,196/year ($183/month)
Holding insurance INSIDE super:
Pros:
Cons:
Holding insurance OUTSIDE super:
Pros:
Cons:
Recommended Strategy for Most Self-Employed:
Let's be honest: insurers view self-employed people as higher risk. Here's why, and what you can do about it.
1. Income Volatility Insurers can't predict your earnings as easily, so they price in uncertainty.
2. Harder to Verify Claims It's more difficult to prove a self-employed person "can't work" versus an employee who simply doesn't show up.
3. Moral Hazard There's a perception (fair or not) that self-employed people might be more likely to claim during business downturns.
4. Occupation Risk Many self-employed occupations involve manual work or higher injury rates.
1. Choose a Longer Waiting Period
| Waiting Period | Typical Premium Impact |
|---|---|
| 14 days | Highest (benchmark) |
| 30 days | 15-20% lower |
| 60 days | 25-35% lower |
| 90 days | 35-45% lower |
| 180 days | 50-60% lower |
If you have 3-6 months of expenses saved, a 90-day waiting period makes sense and significantly reduces costs.
2. Consider a Limited Benefit Period
| Benefit Period | Typical Premium Impact |
|---|---|
| 2 years | 30-40% cheaper than to-age-65 |
| 5 years | 15-25% cheaper than to-age-65 |
| To age 65 | Highest (benchmark) |
A 5-year benefit period covers most illnesses/injuries and costs considerably less.
3. Accepted Occupation Loading
If your occupation carries a premium loading, ask about:
4. Pay Annually
Monthly payments often include an 8-10% surcharge. Paying annually saves money and simplifies tax deductions.
5. Bundle Policies
Many insurers offer discounts of 5-15% when you hold life, TPD, trauma, and income protection together.
6. Maintain Your Health
Smoker loadings add 50-100% to premiums. Improving BMI, blood pressure, and other health markers before applying can reduce costs.
Self-employed premiums vary dramatically between insurers. Some specialise in sole traders and offer better rates. Get quotes from 15+ providers.
Get Free ComparisonYour specific occupation significantly impacts both availability and cost of insurance. Here are considerations for common self-employed occupations.
Builders, Carpenters, Electricians, Plumbers:
Specific guides:
Consultants, Accountants, Lawyers, Medical Professionals:
Specific guides:
Designers, Developers, Writers, Photographers:
Uber Drivers, Deliveroo Riders, Airtasker Workers:
If you run a business with partners, employees, or significant assets, you need to think beyond personal insurance.
What they are: Legal agreements that determine what happens to business ownership if an owner dies or becomes disabled.
How insurance fits: Life and TPD insurance fund the agreement, ensuring:
Example structure:
| Feature | Partnership Protection | Key Person Insurance |
|---|---|---|
| Purpose | Fund buy-sell agreement | Protect business revenue |
| Policy owner | Each partner on others | The business |
| Beneficiary | Each partner | The business |
| Sum insured | Value of ownership share | Lost revenue/recruitment costs |
| Tax treatment | Complex - seek advice | Complex - seek advice |
The optimal structure depends on:
This area requires specialist advice. Tax and legal implications are significant, and incorrect structuring can result in unexpected tax bills.
Buy-sell agreements, Key Person insurance, and business succession planning involve complex tax and legal considerations. While this guide provides an overview, you should work with an insurance adviser, accountant, and lawyer to structure these correctly for your situation. Incorrect setup can result in the surviving business or family facing unexpected tax liabilities.
The application process for self-employed people is more involved than for employees. Here's how to maximise your chances of approval at standard rates.
Financial Documents (last 2-3 years):
Business Documents:
Health Information:
Step 1: Initial Quote (5-10 minutes) Provide basic information for indicative pricing. This is non-binding.
Step 2: Full Application (45-60 minutes) Complete detailed health, financial, and occupation questionnaires.
Step 3: Underwriting (1-4 weeks) Insurer reviews your application. They may request:
Step 4: Offer (Decision) You'll receive one of:
Step 5: Policy Commencement Accept the offer, pay first premium, coverage begins.
1. Apply when your income is strong If you've had a good year, apply now. Income protection benefits can be locked in at current levels.
2. Be completely honest Non-disclosure is the #1 reason claims are denied. If in doubt, disclose it.
3. Don't cancel existing cover until new cover is in place The underwriting process can take weeks. Maintain existing cover until replacement policies are accepted.
4. Consider using an adviser Advisers know which insurers are best for self-employed applicants and can present your application optimally.
5. Apply while healthy That nagging back pain might not seem like a big deal now, but disclosing it on an application could result in back injury exclusions. Get insurance before health issues arise.
It's difficult but not impossible. Most mainstream insurers require 12-24 months of self-employed trading history to offer income protection. However:
If you've recently become self-employed, focus on getting life, TPD, and trauma cover first (which don't have the same income requirements), then add income protection once you have sufficient trading history.
When you make an income protection claim, insurers will typically request:
For Agreed Value policies:
For Indemnity policies:
This is why Agreed Value is so important for self-employed people - it removes the need to prove your "current" income during what may be a difficult period for your business.
Yes, through specific policy types.
"Home Duties" or "Non-Working Spouse" benefits can cover a spouse who:
These policies pay benefits if your spouse becomes disabled and you need to pay for their contribution to be replaced (childcare, household help, or business administration).
Additionally, if your spouse draws any salary from the business (even minimal), they may qualify for their own income protection based on that salary.
No. Income protection only covers inability to work due to illness or injury - not business failure, economic downturns, or loss of contracts.
If your income drops because you lose clients or your industry struggles, income protection will not pay out. This is one reason why business disruption or key person insurance is important for protecting against non-health-related business risks.
For most self-employed Australians:
The right mix depends on your marginal tax rate, cash flow, and super balance. An adviser can model the after-tax cost of different structures for your situation.
Your personal insurance stays with you. Life, TPD, and trauma cover don't care whether you're employed or self-employed.
For income protection:
You should inform your insurer of any significant changes to your work situation, but becoming employed typically doesn't create any problems.
Not directly. Unlike some countries, Australia doesn't have government-subsidised income protection for self-employed workers.
However:
The primary takeaway: self-employed Australians need to self-fund their insurance protection. There's no employer or government safety net.
Check:
Use the frameworks in this guide to determine:
Before applying:
Self-employed insurance is complex. An adviser can:
Get a personalised assessment of your insurance needs. We work with sole traders, contractors, and business owners every day - and know which insurers offer the best terms for self-employed Australians.
Get Your Free QuoteEssential Cover:
Strongly Recommended:
For Business Owners with Partners:
Tax Optimisation:
Application Tips:
Being self-employed offers incredible freedom and opportunity. With the right insurance structure, you can pursue that opportunity knowing your family and business are protected if the unexpected happens.
General Advice Only
Authorised Representative Number: 1244847 | Australian Financial Services Licence: 246623