Until recently, income protection insurance for the self employed was simply not available. The opportunities created by the poor economy have increased, and many people are taking these opportunities and starting their own businesses.

With corporations looking at ways to save money, and employee benefit packages that are shrinking, a few insurance companies have realized the market opportunity that exists for the growing population of self employed people.

Start Up Income Protection Insurance

Start up income protection insurance is designed for businesses that are new. Usually this means that the business is less than thirty-six (36) months old. Like other forms of income protection insurance, this policy type pays a monthly stipend if the insured becomes disabled through illness or injury, and can no longer work.


・ Maximum length of policy is usually up to 36 months. Not all companies offer an upgrade at the end of the 36 months. Some carries do offer extensions, but the policy converts from an agreed value to an indemnity policy. Some carriers have shorter periods so consumers are wise to shop around.

・ Self employed income protection insurance is almost always an agreed value policy type. Consumers should pay attention to the details of how the agreed value is calculated. Sometimes the agreed value is based on the 36 months of work history prior to beginning the start up business. If the company is growing rapidly, the agreed value does not change automatically. Coverage can range from $1000 per month to $9000.

・ The maximum age for self employed income protection is usually 55 years old. Some providers may extend the maximum age limit.

・ Wait periods are predetermined, and the consumer should have a choice of several different wait periods.

・ Consumers should pay close attention to the wording that covers re-injury. If the policy holder has been disabled and received pay outs under their income protection policy, but is released to resume work and then becomes disabled again, then it is important to understand how that process works under your policy. Some policies will waive the wait period, but there are usually restrictions.


Consumers should look for any of the following positive benefits when shopping for income protection.

・ Will the policy pay its own premiums if you are disabled? Some policies will pay the policy premium if there is a pay out situation. This will help the consumer to cut monthly expenses if they become disabled.

・ Will the policy automatically renew if there is a claim? Not all policies renew automatically. Automatic renewals are good, but consumers should make sure that their policy will renew automatically if a claim is in progress. Insurance companies will find any little excuse to drop a policy that is costing them a monthly pay out.

・ Will the policy convert to another policy type once the maximum age limit is reached. Most self employed policies have a maximum age limit of 55 years old. Retirement age is 65 years old, and consumers should look for a policy that will convert to a policy that will cover them until they reach age 65.

Agreed Value VS Indemnity Value Cover

If the consumer is given a choice of either an agreed value policy or an indemnity value policy, than the following considerations should be reviewed. The major difference between the two policy types is how much they pay out on a claim. An agreed value policy pays out 55% of your gross annual income.

The key word here is income, which does not just include salary, but also dividends, etc. The primary benefit of an agreed value policy is that the pay outs are usually not taxable as income. An indemnity policy pays out 75% of gross annual income, and like the agreed value policy, income also includes more than just salary. For both policy types, consumers should pay close attention to how the gross annual income is calculated. Most of the time, the calculation is not your highest income year, it is the lowest.

Insurance companies may take an average of the last 36 months of income and then choose the lowest income period as your set gross income level. That may not seem important, but when you consider that the pay out is going to be either 55% or 75% of that calculation, how they determine gross income becomes very important. See Below:

If, in year one, you made $15,000, in year two you made $17,000, and in year three you made $20,000, than many of us would assume that our gross annual income is our last years wages of $20,000. From the insurance perspective, they may average those three years and come up with $17,333 as your gross annual income.

The difference between 75% of those two incomes is substantial on a monthly basis. At $17,333, your monthly income will be $1062, but the monthly income at $20,000 gross annual salary range is $1250.  That is a significant difference that can be realized simply by examining how the policy provider determines gross income. Before you sign up for an insurance policy you need to talk with a FMA registered financial adviser who will provide advice for you. If you would like to be connected with an adviser please submit your details through this page – Get Advice


(This article and all articles on this site are not to be taken as professional insurance advice, for such advice please speak to a registered insurance broker. We can connect you with a broker by using the form on this site.)