Sole trader’s guide to income protection

Last updated: June 2026

Key takeaways

• Income protection insurance is designed to pay a monthly benefit if illness or injury leaves you unable to work
• Sole traders often need to plan for time away from work without paid sick leave or employer-backed support
• Real Income Protection Insurance can cover up to 70% of your monthly pre-tax income, up to $15,000 per month, depending on your circumstances
• Waiting periods and benefit periods can affect when payments may start, how long they may continue and how much your premiums cost
• Sole traders may need to provide income and employment information when applying, and proof of income may be required if they make a claim
• Income protection insurance is designed to help replace personal income if you get sick or injured and can’t work. It does not cover fixed business expenses, which may need separate insurance

If you are a sole trader, your income usually depends on your ability to work. If illness or injury stops you from working, it could affect both your business and your day-to-day finances.  

Income protection insurance for sole traders provides regular monthly payments if you are unable to work due to a sickness or injury. Depending on the policy, it may help replace part of your income while you focus on recovery.

This guide explains how income protection insurance works, what to compare, and the key things to consider before applying.

The reality for sole traders in Australia

Sole traders are a major part of Australia’s business community. According to the Australian Bureau of Statistics, there were 2,729,648 actively trading businesses in Australia as of 30 June 2025.

Many sole traders rely on their own labour, skills and time to keep income coming in. If they cannot work, there may be no paid sick leave to fall back on, while personal bills and business expenses may continue.

Unlike employees, sole traders generally do not have workers’ compensation cover for themselves. That makes it important to think about how you would manage financially if an illness or injury stopped you from working for weeks or months.

How income protection insurance works for sole traders

For sole traders, income protection insurance is usually shaped by three key things. These include: 

Cover amount and benefit calculation

Income protection insurance usually covers a portion of your income, rather than your full earnings. With Real Income Protection Insurance, you can apply for cover of up to 70% of your monthly pre-tax income, up to $15,000 per month, depending on your circumstances. For sole traders, income can be more complex than it is for employees. Insurers may look at your business income, expenses and net earnings to understand how much cover you may be eligible for. If you make a claim, you may need to provide proof of income, such as tax returns or other business records.

Waiting periods explained

The waiting period is the time between becoming unable to work and when benefit payments may become payable. A shorter waiting period may mean payments can start sooner, while a longer waiting period may help reduce premiums.

With Real Income Protection Insurance, you can choose a 30-day or 90-day waiting period.

Benefit periods explained

The benefit period is the maximum time payments may continue while you remain unable to work and your claim is approved.

With Real Income Protection Insurance, you can apply for a benefit period of 6 months, 1 year, 2 years or 5 years. A longer benefit period may provide cover for longer, but it may also affect your premium.

Learn more: How does income protection insurance work?

What are some of the benefits and considerations of income protection insurance for sole traders?

Here are some of the key benefits and considerations sole traders should keep in mind when comparing income protection insurance.

Potential benefits

• Financial support if you cannot work: Income protection insurance may help replace part of your income if you are unable to work due to sickness or injury. This may help with regular expenses such as rent, mortgage repayments, utilities and other ongoing commitments
• Features that may help during recovery: Real Income Protection Insurance includes features such as a rehabilitation benefit and recurrent disability benefit, subject to the policy terms and conditions
• Possible tax deductibility: As tax deductions depend on your personal circumstances, it may be worth speaking with a registered tax adviser or accountant to see if you are eligible
• Cover beyond the workplace: Income protection insurance can apply to illness or injury that prevents you from working. This may apply in different circumstances to workers’ compensation, which is generally linked to work-related injury or illness for employees

Learn more: Here’s what you need to know about income protection

Key considerations

• Policy limits and exclusions apply: Income protection insurance does not cover every situation. Always read the Product Disclosure Statement before applying
• Premiums can vary: Your premium may depend on factors such as your age, occupation, income, smoking status, waiting period, benefit period and cover amount
• Your income may need to be verified: Sole traders may need to provide evidence of income when applying or making a claim
• Business expenses may need separate cover: Income protection insurance is designed to help replace personal income. It generally does not cover fixed business costs such as rent, equipment leases, utilities or staff wages

Learn more: Real Income Protection Insurance Q&A

Eligibility requirements for sole traders

Income protection insurers have specific eligibility requirements for sole traders. Here’s what you may typically need to qualify.

Sole trader income protection application checklist

• Work status: You generally need to be actively working and earning an income
• Work hours: Some insurers set minimum work-hour requirements. Real Income Protection Insurance is available to working Australian residents aged 18 to 60 earning an income and working more than 15 hours per week
• Proof of income: You may need to provide documents such as personal tax returns, profit and loss statements, Business Activity Statements or accountant-prepared records
• Trading history: Some insurers may ask how long you have been operating as a sole trader, especially if your income changes from month to month

Eligibility criteria vary between insurers, so it is worth comparing policies and checking the PDS before applying.

What income protection insurance does not cover

It is important to understand that income protection insurance is designed to cover personal income loss. It generally does not cover your business expenses.

Common exclusions vary by policy, but may include:

• pre-existing conditions that are excluded or not disclosed
• self-inflicted injuries
• some high-risk activities unless accepted by the insurer
• pregnancy and childbirth during standard recovery periods
• claims that do not meet the policy definition of disability or inability to work.

Always check the relevant PDS for the full list of exclusions, limits and conditions.

Income protection insurance for different types of sole traders

Income protection insurance is available across a wide range of sole trader occupations, but premiums and policy features may vary based on your work.

Tradies, including plumbers, electricians and builders

Tradies are often exposed to more physical work. A back injury, broken arm or serious illness could make it difficult to work on-site, use tools, drive between jobs or complete manual tasks.

Since premiums can vary based on occupation and work duties, some physical roles may be assessed differently from desk-based roles.

IT contractors and consultants

Insurers may assess desk-based roles differently from some physical occupations.

However, IT contractors and consultants can still be affected by illness or injury that prevents them from working.

Creative professionals, including freelance writers and designers

Creative sole traders often rely on deadlines, client relationships and regular project work. If illness or injury affects your ability to concentrate, communicate, design, write or deliver work, income may be affected.

Recurring conditions and partial return-to-work arrangements can be treated differently depending on the insurer and policy terms.

Ways to compare income protection insurance options

Given the range of options available, it is important to compare income protection insurance policies carefully.

1. Assess your needs

Start with your own financial position. Look at your monthly expenses, business costs, savings and average income. This can help you understand how much cover you may wish to consider.

2. Compare waiting periods and benefit periods

These are two of the biggest levers in any policy. With Real Income Protection Insurance, you can choose a 30-day or 90-day waiting period and apply for a benefit period of 6 months, 1 year, 2 years or 5 years.

3. Evaluate policy features

Look closely at the waiting period, benefit period, cover amount and any other product features that may be relevant to your situation.

What is covered under Real Income Protection Insurance is a good page to review alongside the PDS.

4. Read the Product Disclosure Statement (PDS)

The PDS explains the terms, conditions, exclusions and limits of the cover. Reading the Real Income Protection Insurance PDS carefully can help you understand how the policy works before making a decision.

An expert's two cents on income protection insurance for sole traders

We spoke with Don Shields, an insurance broker, who highlighted the role income protection insurance can play for sole traders. He explained, “All sole traders should seriously consider some form of income protection cover. As sole traders, they aren’t covered by workers' compensation insurance and still have ongoing expenses that need to be paid, whether they’re working or not.” 

Don also clarified the differences between income protection and personal accident insurance, which cater to different needs. Income protection insurance offers broad coverage for both illness and injury that prevents you from working, while personal accident insurance specifically addresses injuries from accidents and typically doesn’t cover illnesses. 

When choosing an income protection policy and deciding if they need one, he encourages every independent contractor and sole trader to consider these factors: 

• Benefit period and waiting period: Determine how long you’ll need coverage if you can’t work and how long you can wait before receiving payments. These choices can impact your premiums
• Cover amount: Income protection insurance for self-employed people covers your personal income, not your business’s total revenue 
• Policy inclusions: Compare different policies to understand what’s covered, including specific business expenses or extra benefits like private health insurance

Ready to weigh your options?

For sole traders, an unexpected illness or injury can affect both personal finances and business cash flow. Income protection insurance may be worth considering if you want cover that may help provide financial support during recovery.

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

Frequently asked questions

Can sole traders get income protection insurance?

Real Insurance states self-employed people may apply for income protection insurance, provided they meet the eligibility criteria. Real Income Protection Insurance is available to working Australian residents aged 18 to 60 and working a minimum 15 hours each week.

How much income can Real Income Protection Insurance cover?

Real Income Protection Insurance can cover up to 70% of your monthly pre-tax income, up to $15,000 per month, depending on your circumstances. The cover amount you choose should reflect your income and financial commitments.

What is a waiting period?

Real Insurance explains that the waiting period is the time between stopping work and when your income benefit payments become payable. With Real Income Protection Insurance, you can choose a waiting period of 30 or 90 days.

What is a benefit period?

Real Insurance says the benefit period is how long your payments may continue if your claim is approved and you remain unable to work. With Real Income Protection Insurance, you can apply for a benefit period of 6 months, 1 year, 2 years or 5 years.

Do self-employed people need to show proof of income?

Real Insurance states self-employed applicants may need to provide income and employment information when applying, and proof of income such as tax returns may also be needed when making a claim.