How to protect yourself if you’re self-employed

There are over two million self-employed Australians in the workforce today. There’s no doubt that running your own business can be rewarding, but without the safety nets and security offered by larger corporations, it’s important to consider financial protection as part of essential business planning. When small business owners consider their insurance needs, they immediately think about protecting physical assets such as cars, equipment and buildings. However, they often miss the most important asset in their business – themselves and their key people.
People are the most important asset in any business. If a person is lost to a business due to death, sickness or disability, it can have a significant impact. It may lead to a drop in revenue, loss of clients, and could even lead to the bank calling in any debts or liabilities.

What are the benefits of income protection?

As a self-employed worker, you are not entitled to workers’ compensation. This scheme only provides for illness or injury that may arise out of employment, and by law the self-employed do not meet this definition. Income protection will generally cover up to 75% of your monthly income, in the event that you are temporarily unable to work due to illness or injury. It is paid out as a monthly benefit, which can be used to cover ongoing personal and business financial obligations. Premiums are tax deductible and you can also choose to fund these through your superannuation.

Why do you need life insurance?

Being self-employed means that you not only carry the personal obligations associated with providing for your family, but also the business expenses that may need to be paid out in the unexpected event of your death. This includes any outstanding accountant, lawyer and adviser fees, taxes and any overheads relating to employee salaries, suppliers and lease payments. It’s important to ensure the proper safeguards are in place, so there is no risk to your estate. A death in the business may also result in a change in the ownership structure. If a business owner dies, their shareholding rights may revert to their estate. For the remaining business partners, this may mean that they are now in business with people they had no intention of being in business with.

Are there any tax benefits?

If purchased as a stand-alone policy, life insurance is not tax-deductible for the self-employed. However, income protection and business expense cover are both tax deductible as stand-alone policies.

Remember, your business is unique, so it’s important to talk to your Elston adviser to assess your situation and work out the cover that best meets your needs.

If you would like more information please call 1300 ELSTON or email info@elston.com.au and an adviser will be in touch.