Sole trader income protection insurance

Income protection for sole traders provides financial support, via a monthly payment, if you’re unable to work due to illness or injury.

Nicola Middlemiss's headshot

By

Nicola Middlemiss

Updated

Fact checked
Income Protection

Start comparing

Key takeaways

  • Covers a percentage of your pre-tax income if you can't work due to illness or injury.
  • Seen as an alternative to workers' compensation, which sole traders aren't eligible for.
  • Can be tailored to your specific preferences, including waiting periods and benefits.

Do sole traders need income protection insurance?

Income protection insurance isn't a legal requirement, but it's definitely worth considering - especially if you would struggle financially if you were suddenly without your income.

As a sole trader, you're not eligible for workers' compensation and income protection insurance is often seen as an effective alternative. However, income protection is more comprehensive than workers' compensation, as you would be covered whether you were injured at work, or outside of work.

Pros and cons of income protection for sole traders

Pros

  • A financial safety net if you ever need to be off work for health reasons.
  • Any premiums you pay for income protection are tax-deductible.
  • Flexible policies allow you to tailor your cover to suit your specific needs.

Cons

  • Policies typically get more expensive as you age, and most aren't available to over 60s.
  • Usually, you won't receive your first payment until a month after your waiting period.
  • You may have to pay more if you work in a high risk profession.

Sole trader income protection insurance eligibility

To be eligible for income protection insurance, you'll have to meet a minimum income or working hours requirements, which vary between insurers. You may also have to prove that your income is relatively stable. There are also age and residence requirements with most brands only offering cover to citizens or residents aged 18-60.

How are premiums calculated for sole traders?

The cost of income protection for sole traders is calculated based on several factors, including age, occupation risk, health status, lifestyle, income, insurance benefit, and waiting period. If your income is variable, insurers may average income over several years to determine the payout amount.

How to buy income protection as a sole trader

There are a few different ways you can buy income protection as a sole trader, including:

  • Direct: Buy your policy directly from an insurer, online or over the phone.
  • Through a broker: Engage an insurance broker for more tailored coverage.
  • Superannuation: You can get income protection through your super fund, with premiums deducted from your super balance.

How to calculate your income protection needs as a sole trader

Income protection insurance is highly customisable and you can choose what percentage of your income you'd like covered - within the parameters given by the insurer. Consider these factors when calculating your needs:

  • Expenses: Identify unavoidable monthly outgoings, such as rent, utilities, and loan repayments.
  • Income: Determine what percentage of your earnings are spent on these critical expenses.
  • Savings: Consider other income streams or savings that could cover some of your expenses.
  • Supports: Consider other possible financial supports including your partner, or family.
  • Waiting period: Think about how long you could cover expenses without your regular income.

FAQs

Nicola Middlemiss's headshot
Senior writer

Nicola Middlemiss is a contributing writer at Finder, with a special interest in personal finance and insurance. Formerly a business and finance journalist, Nicola has written thousands of articles helping Australians better understand insurance and grow their personal wealth. She has contributed to a wide range of publications, including Domain, the Educator, Financy, Fundraising and Philanthropy, Insurance Business, MoneyMag, Mortgage Professional, Yahoo Finance, Your Investment Property, and Wealth Professional. Nicola has a Tier 1 General Insurance (General Advice) certification and a Bachelor's degree from the University of Leeds. See full bio

Nicola's expertise
Nicola has written 241 Finder guides across topics including:
  • Personal finance
  • Personal insurance, including car, health, home, life, pet and travel insurance
  • Commercial business insurance
More resources on Finder

More guides on Finder

Go to site