Income protection insurance for contractors

Last updated: July 2026

Key takeaways

• Contractors, sole traders and other self-employed workers may be eligible for income protection insurance
• Income protection insurance is designed to provide regular benefit payments if you're unable to work due to a covered illness or injury
• How your income is assessed – along with waiting periods, benefit periods and benefit amounts – can vary between insurance providers and policies
• It's important to understand what a policy covers, any exclusions that may apply, and how claims are assessed before getting cover
• In Australia, the tax treatment of income protection insurance premiums and benefit payments can depend on your individual circumstances. Consider seeking professional tax advice if you're unsure how the rules apply to you

If you're self-employed, a sole trader, or a contractor, your income may depend on your ability to keep working. If illness or injury prevents you from working for a period, the impact can flow through to your personal finances and, in some cases, your business.

This guide explains who may be eligible for income protection insurance, how insurers may assess income for contractors and self-employed workers, and what to consider when comparing policies, including waiting periods, benefit periods, underinsurance risks and potential tax considerations.

What is income protection insurance?

Income protection insurance can provide regular benefit payments if you're unable to work due to a covered illness or injury. For self-employed workers, understanding how cover works can help you make more informed decisions about protecting your income.

With Real Income Protection Insurance, you may be able to cover up to 70% of your pre-tax income, up to $15,000 a month, depending on your circumstances.

These payments are usually made monthly after any applicable waiting period and may continue for a set time, known as the benefit period.

If you’re a contractor, freelancer, or sole trader who doesn’t have access to employee entitlements like paid sick leave or annual leave, income protection insurance may be worth considering as part of your broader financial planning.

Keep reading: What does income protection insurance cover?

Can contractors get income protection insurance?

Yes, contractors and self-employed workers may be able to apply for income protection insurance.

For example, insurers may consider factors such as your employment status, the type of work you do, how many hours you work, your age, your residency status and your health at the time you apply.

Keep reading: Income protection for the self-employed

Who may be eligible?

While every insurer has their own requirements, income protection insurance may be available to people who earn an income, including:

• independent contractors
• sole traders
• self-employed business owners
• freelancers
• employees working under a contract arrangement

If you're unsure whether you meet an insurer's eligibility requirements, check the policy documents before applying. You can review the Real Income Protection Insurance Product Disclosure Statement (PDS) online.

How income is assessed for contractors

When you apply for income protection insurance, insurers assess the income you earn through your work. The way this is calculated differs for employees and self-employed workers.

For example:

• Employees: Pre-tax income may include your regular salary or wages and, certain regular bonuses or commissions
• Contractors and self-employed workers: Income is usually based on your share of the business income that results from your personal effort, after eligible business expenses have been taken into account. The exact calculation varies between insurers and policy definitions

If your claim is accepted, benefit payments may help replace part of the income you've lost because you're unable to work due to a covered illness or injury. Your benefit amount will reflect your policy terms, verified income and individual circumstances.

Understanding workers' compensation and income protection

Workers' compensation and income protection insurance are designed for different purposes. Having one does not necessarily mean you have the other.

The table below outlines the key differences:

Keep reading: Life insurance vs income protection insurance

More people are part-time or temporary workers

Part-time, temporary and project-based work is now common across many industries. For contractors, this can mean working set hours for one client, taking on short contracts, or moving between projects.

Real Income Protection Insurance may still be available if you meet the eligibility requirements. Generally, this means you’re aged 18 to 60, earn an income, work at least 15 hours per week, and meet the Australian residency requirements.

If your work hours change from week to week, check the PDS before applying so you understand how eligibility applies to your situation.

Cover while travelling

Some income protection insurance policies may continue to provide cover if you become ill or injured while travelling within Australia or overseas. The availability of cover and any claim requirements depend on the individual policy.

If you're planning to travel, it's worth checking how your policy applies outside Australia and whether any conditions apply if you need to make a claim.

Could you be underinsured as a contractor?

Many Australians are underinsured when it comes to income protection insurance.

Financial Services Council research estimated that 3.4 million Australians are underinsured for income protection insurance. Underinsurance can happen when your cover is not enough to replace the income you would lose if you could not work due to illness or injury.

For tradespeople, contractors and self-employed workers, this can be an important consideration. If you do not have paid sick leave and your income stops, you may still need to cover personal expenses, business costs or both.

Keep reading: What is underinsurance and why it matters in Australia

Key policy terms to understand

Understanding a few common insurance terms can make it easier to compare income protection insurance policies and understand how cover may apply to your circumstances.

While definitions can vary between insurers, the following terms are commonly used:

Waiting period

A waiting period is the amount of time you must wait after becoming unable to work before benefit payments may begin.

For example, if your policy has a 30-day waiting period, you'll usually need to be continuously unable to work for that period and meet the policy's claim requirements before any eligible benefit payments can commence.

Benefit period

A benefit period is the maximum length of time you may receive benefit payments while you continue to meet your policy's claim requirements.

Your payments will generally stop when:

• you reach the end of your benefit period
• you're able to return to work in accordance with your policy terms
• you no longer meet the policy's claim requirements
• another policy condition applies

Pre-tax income

Your pre-tax income is usually the income you earn before income tax is deducted. How this income is defined for income protection insurance depends on your employment arrangement and the policy wording.

Benefit amount

The benefit amount is the maximum monthly payment that may be available if your claim is accepted.

Your benefit amount is based on factors such as:

• your eligible pre-tax income
• the level of cover you choose
• the maximum benefit available under the policy
• the insurer's assessment of your claim

When comparing policies, consider the benefit amount alongside the waiting period, benefit period and policy definitions rather than looking at one feature in isolation.

Income protection insurance and tax

Tax is another factor to consider when comparing income protection insurance. If you pay your income protection insurance premiums yourself, they may be tax deductible. Benefit payments are generally treated as assessable income.

For contractors, sole traders and other self-employed workers, this means it's important to understand both the potential tax implications of paying premiums and how any benefit payments may be treated if you make a successful claim.

Premiums may be tax deductible

If you hold an income protection insurance policy in your own name and pay the premiums yourself, you may be able to claim those premiums as a tax deduction, provided you meet the Australian Taxation Office (ATO) requirements.

Whether a deduction is available will depend on factors such as:

• how the policy is owned
• the type of cover provided
• your employment or business arrangements
• your individual tax circumstances

Weigh your options

If you're self-employed or work as a contractor, income protection insurance may provide financial support if you're unable to work due to a covered illness or injury, subject to the policy terms.

Before choosing a policy, compare features so you understand how the cover works in practice.

Learn more about Real Income Protection Insurance or request a quote online.

Frequently asked questions

Can self-employed people get income protection insurance?

Yes, self-employed people, including sole traders, freelancers and contractors, may be eligible to apply for income protection insurance.

What is considered income for a contractor?

For income protection insurance, a contractor's eligible income is generally based on the income earned through their personal effort. The way this income is calculated can vary between insurers and may take into account factors such as business income, eligible business expenses and the policy definition of pre-tax income.

How are income protection insurance premiums calculated for contractors?

Premiums are calculated using a range of factors, which may include your age, occupation, level of cover, benefit amount, waiting period, benefit period and health information provided during the application process. The premium you pay will depend on your individual circumstances and the policy you choose.

Are income protection insurance premiums tax deductible?

In Australia, premiums for income protection insurance paid directly by an individual are usually tax deductible, while benefit payments are generally treated as assessable income.

Tax treatment depends on your individual circumstances. Refer to Australian Taxation Office (ATO) guidance if you're unsure how the rules apply to your circumstances.

What's the difference between workers' compensation and income protection insurance?

Workers' compensation and income protection insurance serve different purposes.

Workers' compensation generally relates to work-related injuries or illnesses where you're covered under the relevant government scheme, while income protection insurance may provide regular benefit payments if you're unable to work due to a covered illness or injury that occurs outside of work.