Despite the immense potential rewards of running your business, being self-employed also comes with its own set of risks. Perhaps the most notable of these is the inability to earn an income if you become ill or suffer an injury.
Fortunately, this risk can be mitigated by taking out an income protection policy for self-employed people. Let’s take a look at self-employed income protection and why you should take out this type of insurance policy if you’re one of Australia’s 2.2 million self-employed people.
What is self-employed income protection?
Self-employed income protection is a type of insurance policy that safeguards the monthly income of individuals who work for themselves; if they’re unable to work because of an illness or injury. Income protection insurance for the self-employed generally provides up to 70% of the policyholder’s monthly pre-disability income.
It’s important to note, however, that even the very best income protection insurance for the self-employed only applies to the income of the policyholder – not their business. Subsequently, if you want similar protection for your business, you should also take out business expenses insurance.
Why self-employed income protection matters
Income protection is crucial for self-employed people because they don’t have the same safety net as those who work for other people, unless you have a lot of cash within the business; even then the capital could get depleted quickly with a couple of months. If you’re employed, at a minimum, you’ll receive statutory sickness pay – while lots of companies also offer additional benefits to account for sickness or injury. Self-employed people, meanwhile, receive no such benefits and have to rely on savings – or the support of their spouse or family if they fall ill or become injured.
With an income protection policy, on the other hand, self-employed people can guarantee themselves a monthly income until they’re well enough to return to work or reach retirement age.
How much self-employed income protection cover do I need?
The amount of self-employed income protection cover you’ll need to take out largely depends on your monthly outgoings and how much you have in savings.
If you have modest monthly outgoings, you can afford to cover a smaller percentage of your salary, which will help reduce the cost of your premiums. If you also happen to have some savings, you may also choose to take out a cheaper income protection insurance policy for the self-employed.
Conversely, if your monthly expenses are high and you have little in savings, you might look to take out the best income protection insurance designed for self-employed people, as you’ll need to cover a larger proportion of your salary.
How much does income protection insurance for self-employed cost?
The cost of income protection insurance for self-employed people is influenced by the following factors:
- Percentage of income you want to cover
- Profession/Nature of business
- Whether you’re a smoker
- Benefit period: how long you’ll receive payments
- Waiting period: how long until you start receiving payments.
To ensure you get the best income protection insurance for self-employed, that completely accounts for your particular circumstances and fits with your budget, speak to an insurance broker or financial adviser.
What other insurance policies should self-employed people consider?
In addition to an income protection policy, a self-employed individual should consider these other types of insurance:
- Public liability insurance: protects you if someone sues you for negligence during the course of your work, i.e., someone is injured or their property is damaged.
- Professional indemnity insurance: especially important for service businesses that consult clients, this protects you if the client sues you for giving them advice that results in a negative outcome.
On an important note, public liability and professional indemnity insurance are mandatory for certain types of companies.
- Business expenses insurance: as touched on above, self-employed income protection only covers the income of the policyholder – not the revenue generated by their business. Business expenses insurance can cover overheads like rent, utility bills, and insurance premiums. You should also consider Key Person insurance to protect the key people in running business operations.
On a related note, skilled trades professionals, like carpenters and mechanics, for example, should take out an income protection policy for sole traders. Similarly, self-employed medical professionals, such as private doctors and consultants, should specifically look at income protection policies for doctors. Fortunately, your financial adviser will be able to help you find the income protection policy that caters to you best.
Would you like to know more about the best income protection insurance policies for the self-employed? Would you like to speak to a trusted adviser about why self-employed income protection is worth it? Contact K Partners to schedule your consultation, and we’ll be happy to help.
See more: Income protection for tradies
Please note that all the while the information provided above is factual in nature, it’s also intended to apply generally, and to a broad audience. Subsequently, the information hasn’t taken your personal circumstances or goals into consideration.