No sick leave. No employer cover. Your income stops when you do, but the business costs don't.
If you work for yourself as a sole trader or contractor, or through a company or trust, no employer is paying you while you recover. Here is how income protection works for the self-employed, in general terms, before you compare quotes.
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What does income protection for the self-employed cover?
Income protection for the self-employed is insurance that replaces up to 70% of your pre-disability income with monthly payments if you cannot work due to illness or injury. You choose a waiting period (how long before payments start) and a benefit period (how long payments continue). Cover is available to sole traders as well as people operating through a company or trust.
Because the benefit is paid monthly rather than as a lump sum, it provides ongoing cash flow for the mortgage, rent, bills, and family expenses while you focus on recovery. Insure Me For Life is a panel broker that compares income protection quotes across our insurer panel, and the general information on this page can help you understand how the product works before you compare.
Why many self-employed people weigh up income protection
No sick leave
Employees get paid sick days. When you work for yourself there is no employer support, so if you cannot work the pay stops, but the bills keep coming.
Business costs keep running
Business income stops if you cannot work, but rent or lease payments, staff wages, and loan interest do not. Income protection replaces your personal income, and a separate product, business expenses cover, exists for the running costs.
Variable income, so keep clean records
New policies are indemnity only, so the benefit is calculated from your actual pre-disability income, evidenced at claim time. More on how indemnity works.
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Income protection for the self-employed in Australia
Sole traders and other self-employed people carry a different income-risk profile from salaried employees. There is no employer-paid sick leave, no annual leave reserve to draw against during recovery, and the cost of even a few weeks off work translates directly into bills not paid. Income protection insurance is the product designed to fill that gap: it pays a monthly benefit while you are unable to work due to illness or injury, regardless of where the injury happened.
The structural choices are the same as for any income protection policy, but they carry more weight when your income varies. The waiting period is the gap between being unable to work and benefits starting; common options are 30, 60, or 90 days, some insurers document 14-day options on certain cover types, and shorter waiting periods cost more in premium. The benefit period is how long benefits keep paying once they start: 2 years, 5 years, to age 65, or to age 70. The monthly benefit is set as a share of your income, up to 70%. The right balance depends on cash reserves, family situation, and premium budget. The income protection comparison sets these variables out side by side.
Every new retail income protection policy is an indemnity contract, because APRA ended agreed value contracts for new business from 31 March 2020. At claim time, the benefit is calculated from your actual pre-disability income, evidenced with documents such as tax returns, payslips, or business financials. If your income has fallen since you applied, the benefit is assessed on the lower figure, so it is common to review the insured benefit when income changes materially. For the self-employed, that makes clean financial records important, and insurers differ on the averaging window and on how they treat a temporarily reduced year.
Premiums are generally tax deductible when income protection is held outside super, because the cover relates to assessable income. Cover held inside super is paid for with pre-tax super contributions, but the benefit-period and definition options are often more limited and benefits typically face a release-of-funds test before they pay. The retail versus super insurance guide sets out how cover held in each place differs. This is general information rather than personal advice; your accountant or tax adviser is the person to confirm tax treatment for your situation.
Self-employed income protection questions
Do sole traders need income protection?
Sole traders have no employer sick leave to fall back on, so when illness or injury stops you working, your income stops while business costs such as rent or lease payments, staff wages, and loan interest can keep running. Default cover held inside super often includes limited income protection or none at all. Income protection is the product designed to replace part of your income when illness or injury stops you working. Whether it makes sense in your case depends on your circumstances, which we do not assess; the general information here can help you weigh it up.
Is income protection tax deductible for the self-employed?
Premiums for income protection held outside super are generally tax deductible, because the cover relates to your assessable income. Cover held inside super is paid for with pre-tax super contributions. How that applies to you depends on your circumstances, which we do not assess, so check with your accountant or tax adviser.
How do insurers work out the benefit when my income varies?
New income protection policies are indemnity contracts, because APRA ended agreed value contracts for new business from 31 March 2020. The benefit is calculated from your actual pre-disability income, evidenced at claim time with documents such as tax returns or business financials, and the monthly benefit is up to 70% of that income. If your income has fallen since you applied, the benefit is assessed on the lower figure, and insurers differ on the averaging window and on how they treat a temporarily reduced year. That is why clean financial records matter when your income varies. How this applies to you depends on your circumstances, which we do not assess, and the Product Disclosure Statement for each policy sets out how it works.
What happens to my income protection if I change jobs or become unemployed?
The answer depends on how your cover is held and on the terms of your policy. Our FAQ on changing jobs or becoming unemployed explains what happens to your income protection insurance, and how it applies to you depends on your circumstances, which we do not assess.
Also helpful
Background reading if you want to understand the options before you compare quotes.
Life insurance for self-employed Australians
Sole-trader-specific considerations: irregular income, no employer super, tax treatment, and common cover structures.
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Income protection for tradies
If you work in a trade, how insurers rate occupations, with pages for common trades such as electricians, plumbers, and carpenters.
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Income protection insurance explained
A glossary definition of income protection insurance and the terms that go with it.
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Business expenses insurance
Reimburses ongoing fixed business costs if you are unable to work due to illness or injury. It sits alongside income protection rather than replacing it.
Read more →