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Income protection insurance for the self-employed FAQs


Published 9 October 2018

Questions you might have about income protection insurance if you're self-employed.

1. I’m self-employed. Can I get income protection insurance?

Absolutely. Income protection insurance is for anyone who earns an income. 

You will generally need to be working more than 20 hours a week. You will – just as employees are required to – need to provide evidence of your income. 

Typically, this is done by providing recent tax returns. This means it can be difficult to get income protection insurance until you’ve been self-employed for at least 12 months.

2. I don’t get sick leave or workers’ compensation. Do I need income protection insurance even more than employees at a company?

One of the challenges of self-employment is the lack of paid leave and workers’ compensation entitlements. 

If you become ill or injured, you may be left to your own resources, so it’s wise to have insurance cover to fall back on.

3. I’m a self-employed contract worker. Can I still get income protection?

Yes. While working as a contractor can sometimes feel like being an employee, you’re still considered to be self-employed. 

While your premium will vary depending on what industry you’re working as a contractor in, you should be able to insure your income.

4. What is considered income for a self-employed person?

It’s your business’s income from your personal effort minus the costs and expenses of generating that income. 

It’s typically only after submitting their tax return that a self-employed individual has an exact figure for what their income was over the last financial year. 

This is why insurers and financial institutions ask to see a couple of tax returns before providing a service to business owners.

5. Can I add my business expenses to my policy?

No. For example, if you have revenues of $150,000 and business expenses of $50,000, your income is calculated as being $100,000, not $150,000.

6. Is my premium still tax deductible?

Generally, insurance premiums paid on income protection policies held directly by you as an individual (rather than through your superannuation fund) may be tax deductible, with any benefits paid being treated as assessable income. We recommend that you seek professional tax advice from an independent tax adviser or registered tax agent specific to your individual circumstances.

7. What’s the difference between an indemnity and agreed value policy?

Most self-employed people find their income fluctuates from one financial year to the next. 

This can be due to external factors, such as the industry they are a part of booming or busting. It can also result from individual choices, such as taking six months maternity or paternity leave.

There are two types of income protection policies: agreed value and indemnity. An agreed value policy pays out a set amount if anything goes wrong, regardless of how much or little you’ve been earning before making the claim. An indemnity policy provides a reduced payout if you’ve been earning a below-average income in the 12-24 months before making a claim.

Let’s say you’re currently earning $100,000 and take out an agreed value policy based on 75 per cent of that income. If anything does go wrong in the future, you will be paid $75,000 a year. 

However, if you go for an indemnity policy, any future payout will be based on what you’ve earned during the previous two financial years. If you’ve earned $100,000 or more, you’ll still be paid $75,000 a year. But if you’ve averaged an income of only $10,000 a year, you would be paid only $7,500. 

It should be noted that if your income increases your payout does not automatically increase as well. Your maximum payout will be determined by the income you had when taking out the policy. 

If your income does increase significantly in the following years, you may wish to adjust your agreed value or indemnity policy to reflect your changed circumstances.

8. I’m a small business owner, are there any other special things I need to consider?

You may want to look into other forms of insurance to make sure you’re covered if things other than your health go awry. These could include: 

  • professional indemnity insurance if you provide a professional service
  • product liability insurance if you sell products 
  • tool insurance if you’ll need to quickly replace vital equipment in the event of theft or damage. 

Speak to an insurance professional for assistance in what insurances might be appropriate for you and your business. 

Find out more about ANZ Income Protection

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This information was published on 9 October 2018 and is subject to change.

The issuer of this information is ANZ. While ANZ has taken care to ensure that this information is from reliable sources, it cannot warrant its accuracy, completeness or suitability for your intended use. To the extent permitted by law, ANZ does not accept any responsibility or liability arising from your use of this information.

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