As a self-employed individual, you make up your entire business. You are the source of your livelihood. But have you ever wondered what would happen if you were to suddenly fall ill or get injured, impacting your ability to work? What would happen to your income? Or worse, your lifelihood?

Well, that’s where income protection insurance policies come into play. They’re designed to replace up to 70% of your pre-tax income during periods you’re unable to work, enabling you to prioritize your rehabilitation.

In contrast to salaried employees who have access to a range of worker’s compensation benefits, investing in income protection insurance is the optimal method for self-employed individuals like yourself to safeguard your financial stability.

What are Your Options for Income Protection Insurance?

The good news is, as a sole trader income protection insurance is available to you. However, there are a few criteria that need to be met and key factors that need to be considered before obtaining income protection coverage.

• Regarding eligibility requirements, certain conditions may apply, such as a minimum period of self-employment and/or a minimum number of weekly working hours to be classified as self-employed for an income protection policy.

• Most policies offer coverage for up to 70% of pre-tax income plus super guarantee for a specified period. It is crucial to note that income protection insurance solely covers the loss of personal income, not the income of the business.

• The insurer may require proof of earnings through tax returns or bank statements. If income varies, the average may be calculated instead.

• Currently all new income protection policies are offered as indemnity value policies. Therefore, income is calculated when the claim is made, not when the policy is initiated.

• The benefit period is variable and can range from a year, to a couple of years, or even to age 65 years for qualifying occupations.

• Waiting periods can range between 30 days to 2-years. It is important to ensure adequate savings are available to cover expenses while waiting for benefit payments to commence.

• Generally, premiums are tax-deductible; however, benefit payments are considered taxable income.

• Occupation, age, medical history, and lifestyle habits determine the cost of premiums.

• Most policies offer optional benefits, including rehabilitation benefits (outside super).

It is crucial to review and evaluate different income protection insurance policies before making a decision. Be sure to understand your product disclosure statement (PDS) or consult with an insurance broker to determine what’s available to you and to decide the best policy for your personal circumstances.

What are the Benefits of Income Protection Insurance for the Self-Employed?

There are several potential benefits associated with investing in income protection insurance for self-employed individuals who lack access to traditional employee benefits. Core benefits include:

• Peace of mind knowing that you have a financial safety net. You’ll be able to focus on your recovery without the added worry of financial difficulties.

• Coverage of everyday expenses as benefit payments can be used to pay for bills, groceries, mortgage payments, and even business-related expenses.

• Flexibility, with some policies being able to be tailored to your specific needs, such as the waiting period and benefits. For instance, you can opt for a longer waiting period if you have savings that can hold you afloat for a while.

• No medical tests, meaning you can apply for an income protection insurance policy without needing medical or blood tests.

• Broad coverage for a range of illnesses and injuries, including both physical and psychological conditions.

Like every other insurance policy out there, it’s something you have in the back of your mind but may not invest in, until it’s too late or impossible to do so. Weigh up these benefits and consider how important it is for you to be well protected when the unexpected comes your way.

Get the Help of an Experienced Insurance Broker

At Morgan Insurance Brokers, we simplify the process of acquiring your next insurance policy. We understand the critical importance for self-employed individuals to have peace of mind and comprehensive coverage in adverse situations. Our team of brokers can assist you in evaluating your options and determining the optimal course of action.

It’s always better to be safe than sorry. Contact us today.