Life insurance for freelancers and the self-employed

Source: Statista 

Running your own show? Whether you’re a freelancer, entrepreneur, tradie, or small business owner, being self-employed in Australia comes with heaps of benefits. You get to be your own boss, set your own hours, and reap the financial rewards. But it’s also crucial to be aware of the risks that come with it. 

According to the latest census, nearly 17% of Aussies are self-employed. And while there are plenty of perks, managing your own business also means handling fluctuating cash flow and covering all your overheads. So, when money gets tight, it might be tempting to skip out on things like income protection insurance. But here’s the thing: when you’re self-employed, your most valuable asset isn’t your gear or your car – it’s you.

Have you thought about what would happen if you got sick or injured and couldn’t work for a few months? Would you be able to cover your personal and business expenses? Unlike employees, self-employed people don’t have sick leave or workers’ compensation to fall back on. That’s where income protection insurance comes in handy. It’s a safety net to help you keep afloat if you’re temporarily out of action. Let’s dive into why it’s so important and how you can protect yourself.

Income protection: Your safety net 

Income protection insurance can be a lifesaver if you’re self-employed. It generally covers up to 70% of your monthly income for a set period if you’re unable to work due to injury or illness. So, imagine you’re a tradie who takes a nasty fall or a freelancer who comes down with a serious illness – income protection insurance can help keep the bills paid while you recover. 

A couple things to keep in mind: you're eligible to apply if you're putting in around 20 hours of paid work per week (though this can vary by policy). There’s usually a waiting period before any benefits is paid out, meaning you need to be unable to work for longer than this period before you start receiving payments. On the bright side, the premiums for income protection insurance are often tax-deductible, making them more affordable. 

You also have the option to fund your premiums through your superannuation. While this can be a handy way to manage cash flow, it’s essential to think about how it might impact your super balance and your retirement plans. For instance, if you’re planning a big trip around Australia when you retire, you’ll want to make sure you’re not short-changing your future self.

How does an income protection claim work if you are self-employed?

One key thing for self-employed folks to remember is that if your income fluctuates (like it does seasonally), any claim you make will be based on the income you earned in the 24 months before the accident or illness that caused the claim. The income you were earning when you took out the insurance isn’t considered unless it falls within that 24-month period. This is standard across the life insurance industry. 

To know more about choosing the right income protection policy for you, check out this article. 

Life insurance: Protecting your future 

When you’re self-employed, you’ve got a lot on your plate. In the event of your death, there are both personal and business responsibilities to consider. Life insurance can be a crucial safety net for both aspects of your life. It can help cover personal expenses like paying off your mortgage and providing financial support for your loved ones. On the business side, it can cover outstanding expenses such as accountant, lawyer, and financial adviser fees, government taxes, and overheads like employee salaries, supplier payments, or leases. It can also help your business keep running smoothly, covering employee wages and other essential costs until things are sorted out. 

Every small business is unique, and there’s no one-size-fits-all solution. Whether you’re an entrepreneur, freelancer, or small business owner, having a chat with your financial adviser can help you find affordable and potentially tax-effective insurance solutions tailored to your specific needs. This way, you can have peace of mind knowing you’ve protected both your personal and business interests while you work towards achieving your goals. 

Remember, taking care of your life insurance needs is just another step in making sure you’re covered from all angles.