Income protection insurance for the self-employed

Think how your financial standing might suffer if something happened and you could not earn a living. What would you do? How would your family cope, not only paying the bills but looking after you were you to become disabled some way?

How does income protection insurance work?

Income protection insurance provides up to 75% of your income (less business expenses) upon the event of a injury or illness which keeps you off work for longer than your waiting period. This payment would last until you have recovered sufficiently to go back to work, or up until the maximum specified benefit period.

A typical basis for payment for an indemnity contract is your pre-tax share of the gross income after deduction of trading expenses, in the 12 months immediately prior to the date of your incapacity. Some policies operate on the best 12 months over the last 3 years as they realise that self-employed people often have a fluctuating income.

Why is income protection important for the self-employed?

Put simply, most self-employed people don’t have sick leave, holiday leave, maternity leave, or long service leave backing them up. Other than government benefits from Centrelink, there is no safety net for a self–employed person if they fall ill or become injured and are unable to continue working. The risk may be even higher for sole traders, or business owners with only one or two key employees. Their business would stop running, instantly reducing income that would normally pay for bills and living expenses. The self-employed individual may find their lifestyle dramatically changed with the sudden drop in income, affecting their lifestyle and those of loved ones.

Other options other income protection insurance to consider when you are self employed

You may also like to look at adding business expenses cover to cover your fixed business expenses for up to 12 months. These expenses means your share of the normal day to day expenses of your business actually incurred by you and include, but are not limited to:

• Accounting and audit fees
• Bank charges
• Equipment hire and motor vehicle leases
• Business related insurance (excluding premiums for the policy)
• Rent and regular interest installment payment on business mortgage or loan
• Electricity, gas, water, heat, laundry, telephone, cleaning
• Business property rates and taxes
• Telephone costs
• Regular advertising costs
• Subscriptions/fees/dues to professional associations
• Salaries of employees who do not generate sales income or billings, and costs directly related to salaries (e.g. superannuation)
• Net cost of a locum (a person sourced external to your business and who is a direct replacement for you whose gross sales, income or billings are less than the fees incurred for that locum)

Income protection provides 75% of your wages upon diagnoses of an illness or injury. This means that if you become sick or injured, which keeps you off work for longer than your selected waiting period, your insurance company will help you pay your bills and living expenses while you recover.

If your income has to work within a very tight budget or your family relies on your part-time income to pay for bills and put food on the table, then income protection insurance is a must.

If you already have an income protection insurance policy

If you already have an income protection insurance policy, make sure you review it regularly. This is particularly important if your business out-goings have grown considerably, your living costs have increased, or the number of those dependent on you has increased.

If you don’t regularly review your situation, you may find yourself severely underinsured come claim time. This will only add further stress to your situation, possibly impeding your recovery and causing even more worry for your family or loved ones.

Income protection insurance specialists for the self employed

If you need help in deciding which income protection insurance policy best suits your needs then contact xLife or request free income protection quotes.

Exclusive Offer! Call xLife on 1300 135 205 today and
save up to 20% on your first year’s income protection premium.

September 2009