Life Shield - Your Life, Your Protection, Personal Insurance

Income Protection for the Self Employed

If you are unable to work, you have no income. Income Protection is a way to outsource the financial risk to an insurance company so that in the event that you can’t work, your income continues.

After all of the hard work that you have put in to get yourself and your business to where you are today, the last thing you need is for an injury or illness to keep you away from work for extended periods of time. At least with Income Protection, you will be financially compensated.

Income Protection provides you with an ongoing income stream in the event of not being able to work due to illness or injury. There are many possible variations within the policy and it makes sense to choose the options that are relevant to your occupation and lifestyle. We have covered some of the relevant variations for income protection for the self employed below:

How much can you insure?

Usually with Income Protection you can insure up to 75% of your current income which can be increased as your income increases. For the self employed, this means income earned from personal exertion (income earned by yourself) minus your share of business expenses required for you to earn that income.

As an example if you are the sole income generator for your business, the business profit and loss statement would be a good starting point when calculating your insurable amount for Income Protection. Then you are able to add back any benefits that you received as these are included in your ‘salary package’. You are also able to add back deductions on your profit and loss statement that have been included for tax purposes. These items would include superannuation contributions, car allowance, income splitting amounts, depreciation, etc.

Please note that we will help you to correctly determine the maximum allowable insured amount for Income Protection.

Contract type – Agreed or Indemnity?

As you are self employed, your income changes from year to year. An ‘agreed’ Income Protection contract ensures your whole benefit will be payable in the event of a claim even if you have earned less over the preceding 12 months to claim. An ‘indemnity’ option costs less, however means that at the time of claim you will need to provide recent financials to support your benefit amount which may eventually result in a lower benefit payable.

Stepped or Level Premiums?

Stepped premiums are great in the short term, however will cost you much more in the longer term as your Income Protection premium will increase each year due to your increasing age. If you are expecting to keep your policy in place up to retirement, reviewing the level premium option (which does not increase in cost up to age 65) could save you half of your premiums over your lifetime. This will ensure that your Income Protection premiums remain cost effective and affordable.

Waiting Period / Benefit Period

Choosing the right waiting and benefit period on your policy is paramount. This can be the difference between receiving a benefit or not. It also makes a large difference to the cost of your Income Protection.

For example, if you can afford (through savings or other liquid funds) to be able to manage for the first 3 months of not being able to work and therefore have an Income Protection policy with a waiting period of 90 days, this will reduce the cost by approximately one-third. If you already have some Income Protection within your superannuation fund that you are happy with a benefit period of 2 years, an additional policy may be purchased with a waiting period of 2 years in order to further reduce costs. This will ensure that you will be protected for more serious (longer term) illnesses and accidents that keep you away from work for longer periods of time or even for the rest of your life.

Business Expenses Insurance

For the self employed, a combination of Income Protection and Business Expenses insurance can provide you with the maximum assurance that you will be financially secure in the event of not being able to work.

Business Expenses insurance can protect up to 100% of the fixed ongoing expenses of your business for up to one year of disability. This will allow you breathing space in the event of serious accident or illness so that you have time to plan succession or the sale of your business assets.

Life Shield is a specialist Personal Insurance brokerage business. We understand the marketplace for the self employed and we have the experience and knowledge to provide an efficient and professional service.

For the self employed, Income Protection can provide the protection that you need to ensure that you and your family are financially secure in the event that you can not work and it is worth taking the time (and speaking to someone who understands the marketplace) to ensure that you have the best possible cover and at the best price.

Either call us directly or use our online enquiry form to make an enquiry and we look forward to discussing your Income Protection and other Personal Insurance needs shortly.

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At first I didn’t even realise my condition was covered however my adviser at Life Shield assisted me with the whole process (including the paperwork!) and now I can concentrate on my health rather than wondering how I would pay the bills.
I will be recommending your company to all….

H. Brown
Self Employed
South Caulfield, Victoria.

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Phone: 1300 447 710
Fax: 1300 44 24 10
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