Income protection for the self-employed

Income protection insurance is designed to replace a portion or percentage of your income if you get sick or injured, and can’t work.

If you are in the workforce and have commitments such as bills, mortgages and other expenses, you should consider income protection insurance as a safety net for yourself, family or your loved ones. If you are self-employed or a small business owner, this may be especially important to consider as you may not have sick leave or annual leave to use if you are injured or sick and unable to work.

What is income protection insurance?

Income protection insurance, is a way to cover yourself against the risk of not being able to work if you get sick or injured. It can form part of a whole risk-mitigation strategy with other types of insurance, such as life insurance.

How does income protection insurance work?

The amount of coverage you get under income protection insurance varies depending on the policy you choose, but this type of insurance can cover you for up to 70% of your pre-tax income, up to a capped amount per month. Your income benefit is also usually paid to you for an agreed length of time. For example, with Real Income Protection Insurance you can apply for a benefit period of either six months, one year, two years or five years for up to 70% of your pre-tax income, up to $15,000 a month. Policies with other insurers may have differing amounts, so it’s always important to do your research and familiarise yourself with the policy’s Product Disclosure Statement.

It’s important to note that an income protection insurance policy will only cover the loss of your share of income earned through ‘personal exertion’ directly due to your own personal efforts. Which means that if your self-employed, and your business continues operating in some manner, your cover under your policy will be for the direct loss of income that your injury has caused, in other words, the amount the business would otherwise cease earning in the event you were unable to work due to a sickness or injury.

Waiting period

Another key term to be aware of is the waiting period. This is the period of time you wait after your claim has been accepted, to when you are eligible to start to receive your income benefit. With Real Income Protection Insurance you can choose from either 30 days or 90 days.


It’s important to be aware of any exclusions, so you have an understanding of the scope of your income protection insurance policy. Read thoroughly your policy product disclosure statement. The insurer could exclude situations relating to attempted suicide, war or any criminal or illegal acts.

The benefits of income protection insurance for those who are self-employed

Income Protection Insurance can be advantageous to consider for those who are self-employed  for a number of reasons. As someone who is self-employed, you may be more vulnerable to cash flow risks and market conditions, and you will have both personal and business financial obligations you need to meet every month. The income benefit paid can be used however you wish, which could include the following:

  • Keeping your business running: You can use your income protection insurance payments to keep your business afloat, such as paying suppliers and meeting lease obligations.
  • Pay your personal bills: You can meet your expenses while unable to work. You can use funds from your income protection insurance to cover groceries, pay your utilities bills, and cover your health insurance as you recover from your sickness or injury.
  • Health-care costs: You’re able to use your insurance money to pay for your health-care costs whether it’s doctor’s visits, specialist visits or something else. This could allow you to recover without worrying about how you’ll pay for everything while you’re getting better.

An additional benefit is your income protection insurance premiums can be tax deductible but you need to seek the advice of a professional to understand if it applies to your situation.

No matter your industry or family situation, having income protection insurance can protect you against the uncertainties of life as a self-employed individual. Discover more with Real Income Protection Insurance.