When you’re employed and you do your back in on site, workers compensation generally pays part of your wages while you recover. When you’re a sole trader, there’s usually nobody paying. The jobs stop, the bills don’t.
This guide explains the two types of insurance tradies most often hear about for replacing income: income protection and personal accident and illness cover. It covers how each one works, the terms that decide what you get, how tax and super come into it, and where to get advice. It’s based on Moneysmart, the ATO and WorkCover Queensland, checked in October 2026.
This is factual information about how these products work. It isn’t a recommendation to buy either type, and we don’t link to or earn commission from any income protection product. These are complex products, and a licensed financial adviser or insurance broker can consider your situation.
The workers comp gap
State and territory workers compensation schemes cover employees. If you’re a self-employed sole trader, you’re generally not covered for your own injuries, even if the injury happens at work. If you employ staff, including apprentices, workers compensation for them is compulsory, but it doesn’t extend to you as the owner.
Queensland has an optional exception. WorkCover Queensland offers workplace personal injury insurance that eligible self-employed people can buy. It covers work-related injury only, not illness or injuries away from work.
The result for most sole traders: without some form of income cover, any time off work for injury or illness is unpaid.
How income protection works
Income protection insurance pays you a regular benefit if illness or injury stops you working. Moneysmart explains the key features:
- Benefit amount. Policies commonly pay up to about 70% of your pre-tax income, with a monthly cap. For self-employed people, insurers usually work out income from your tax returns and business figures, so messy books can make claims harder.
- Waiting period. How long you must be unable to work before payments start. Common options are 30, 60 or 90 days. A longer waiting period usually means a lower premium.
- Benefit period. How long payments can continue once they start. Common options include two years, five years, or up to a set age such as 65.
- Definition of disability. Whether you must be unable to do your own occupation, or any work suited to your training and experience, to be paid. For tradies in physical work, this definition matters a lot.
- Premium structure. Stepped premiums are based on your age each year and usually rise over time. Level premiums start higher and are designed to change less with age.
Income protection is usually sold by life insurers, either directly, through advisers and brokers, or through super funds. Applications involve health and occupation questions, and some physical trades pay higher premiums or face exclusions.
How personal accident and illness cover works
Personal accident and illness insurance is often offered alongside business insurance. It typically pays a weekly benefit if an accident (and, where included, illness) stops you working, and may pay lump sums for specific serious injuries.
Common features to look for in the PDS:
- Shorter benefit periods. Often measured in weeks or a year or two, rather than years or to age 65.
- Waiting periods. Can be shorter than for income protection, sometimes days rather than weeks.
- Benefit limits. A weekly cap, sometimes a percentage of income.
- Illness cover. Sometimes optional or excluded. Check whether illness is covered at all.
- Simpler application. Often fewer health questions than income protection.
Side by side
This table compares the two product types in general terms. Individual policies vary, so check the PDS for any policy you consider.
| Feature | Income protection | Personal accident and illness |
|---|---|---|
| Usually sold by | Life insurers, advisers, super funds | General insurers, often with business packs |
| Covers illness | Yes, usually | Sometimes, check the policy |
| Typical benefit periods | 2 years, 5 years or to a set age | Weeks to a year or two |
| Waiting periods | Commonly 30, 60 or 90 days | Often shorter |
| Application | Detailed health and income questions | Often simpler |
| Benefit based on | Your proven income | Weekly amount chosen, within limits |
Tax and super
The ATO says income protection premiums you pay outside super are generally tax deductible. Premiums paid through super aren’t deductible to you personally. Life, trauma and TPD cover aren’t deductible either, so if a policy bundles them, only the income protection part is deductible. Benefits you receive under an income protection policy are generally assessable income.
For personal accident and illness policies, deductibility can depend on what the policy covers. Ask a registered tax agent how it applies to your policy.
Many super funds provide income protection, sometimes by default for members. Points to check in your fund’s insurance guide:
- whether you have any cover now, and how much
- the waiting and benefit periods, which are often shorter than retail policies
- the definition of disability used
- whether cover continues if you stop making contributions, since inactive accounts can lose insurance
Premiums inside super come out of your balance, which reduces your retirement savings. That trade-off is personal, and a licensed adviser can help with it. Our sole trader setup guide covers super and other setup decisions in more detail.
Where self-employed claims get tricky
Claims for self-employed people can be more complicated than for employees, mainly because proving income is harder. Common sticking points that Moneysmart and insurers point to include:
- Proving your income. Insurers usually rely on your tax returns and business financials. If your income goes up and down, or you’ve just started, the amount you can insure or claim may be lower than you expect.
- Business expenses. Benefits are based on your income, not your business costs. Some policies offer separate business expenses cover for fixed costs such as rent and loan repayments while you’re off.
- Pre-existing conditions. A bad back or old knee injury you mentioned (or didn’t mention) on the application can lead to exclusions or claim problems. Answer health questions fully and honestly.
- Partial return to work. Many tradies can do some work while recovering. Policies differ on whether and how they pay partial benefits.
- Offsets. Some policies reduce benefits if you receive other payments, such as from another policy or a compensation claim.
The PDS explains how each of these is handled for a particular policy.
Questions to answer before you talk to anyone
These help you get more out of a conversation with an adviser or insurer:
- How long could you cover your bills with savings if you couldn’t work? That shapes the waiting period question.
- What’s your actual net income over the last two years, based on your tax returns?
- Do you already have any cover through super? Check your latest statement.
- Do you have any existing health conditions or injuries an insurer will ask about?
- Do you do any high risk work, such as heights or roofing?
How this fits with your other insurance
Income cover is one piece of the picture. Public liability covers your liability to other people, and tools cover protects your gear. Neither replaces your income. See our public liability guide and our overview of tradie insurance for how the main types fit together.
Common questions
Do sole traders get WorkCover?
Generally no. State workers compensation schemes cover employees. Self-employed sole traders are usually not covered for their own injuries. Queensland is an exception of sorts: WorkCover Queensland offers an optional workplace personal injury policy for eligible self-employed people, covering work-related injury only.
Is income protection tax deductible?
The ATO says premiums for income protection insurance paid outside super are generally deductible. Premiums paid through super aren't deductible to you, and life, trauma and TPD premiums aren't deductible. If a policy bundles covers, only the income protection part counts. Benefits you receive are generally taxable income.
What is a waiting period?
The time you must be unable to work before benefits start. Moneysmart says common waiting periods are 30, 60 or 90 days, and longer waiting periods usually mean lower premiums.
Can I get income protection through my super fund?
Many super funds offer income protection, sometimes by default. Cover through super is often cheaper to start but may have shorter benefit periods and different definitions. Premiums reduce your super balance. Check your fund's insurance guide and PDS.
