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Self-employed? Here's what you need to know about income protection insurance

Anyone who has given up the comforts and conveniences of a “regular” job for life as an entrepreneur will know that self-employment comes with its own set of rewards and challenges. Sure, you have more control over your life—the hours you keep, the people you work with, the projects you work on—but, as the saying goes, with great power comes great responsibility.

You work hard, but the fact of the matter is: life happens. Whether you’ve fallen ill or suffered a workplace injury, there may come a time when you are suddenly and unexpectedly unable to work. Unfortunately, your expenses won’t stop when you do.

That’s where income protection insurance comes in.

What is income protection insurance and why I may need it?

Put simply, income protection insurance (also known as salary continuance) protects you and your assets—at home and at work—when an accident or illness requires an extended absence from your day job. We like to think of income protection as a financial lifeline, a shortcut to peace of mind during an otherwise difficult and stressful time.

Consider the other, varied expenses in your life: childcare, utility bills, mortgage repayments, and groceries, to name a few. Ask yourself: is your “rainy day” fund enough to cover these costs and more for a month? Six months? A year?

If you answered “no” or “I don’t know” to the above, you’re not alone. Regardless of whether you have financial dependents or are the sole income earner in your household, taking out an insurance protection policy will preserve your savings, allowing you to tackle pesky expenses and manage debt without disrupting the self-employed lifestyle you’ve worked so hard to achieve.

What are my options for income protection insurance?

Income protection policies provide monthly benefits of up to 75 per cent of your income, alleviating many of the financial pressures that follow an illness or injury.

When it comes to selecting a policy, there are two options to choose from:

  • Agreed-value policy: With an agreed-value policy, you confirm income and benefit amount at time of application, effectively locking in to a pre-determined monthly payment and timeframe. People who are self-employed or are concerned about income fluctuations may consider this option.
  • Indemnity policy: With an indemnity policy, you report income at time of claim, and benefits are paid in proportion to your current earnings. Business owners who have steady income may prefer an indemnity policy, as there is less risk of an income drop between applying for cover and filing a claim.

When purchasing or comparing an income protection policy you will need to consider what is an appropriate benefit and waiting period for you.

What types of premiums are there?

Insurance premiums generally increase as you get older because you are more likely to make a claim.

When choosing a life insurance policy, you may have the option to choose between stepped or level premiums.

  • Stepped premiums increase as you get older, but cost is generally cheaper at the beginning. However, it is important to consider rising costs over time.
  • Level premiums, on the other hand, are generally more expensive at the beginning, but much more consistent over time.

There are benefits to both types of premiums. Talk to the team at Lifebroker to find out more about different premium types.

What are the benefits of income protection insurance for self-employment?

A key benefit of income protection insurance is precisely that: income protection. If you are self-employed, applying for coverage puts you in a better position to manage debt, cover expenses, and care for your loved ones when life throws you a curveball.

That’s not all, though. With an income protection policy, you may prevent sleepless nights spent fretting over the bills piling up on your kitchen table. Instead, you can focus on what really matters: getting back to a healthy, happy you.

This website offers General Advice only and does not consider your personal objectives, financial situation or needs. Before you purchase a product, it is important to read the relevant Product Disclosure Statements to consider if the product is appropriate for you.


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