Income protection calculator — how much cover do you actually need?
Cover your gap, not your lifestyle. See what the policy really costs.
Income protection is not about replacing your income — it is about covering the gap between your essential outgoings and whatever cash you already have. Buy the wrong amount and you either waste premium or find the policy insufficient when you need it.
This calculator sizes the cover against your real survival costs, subtracts your savings and emergency fund, and shows the premium you can expect to pay.
Income is a flow; protection is a wall
Freelancers live on flow — invoices issued, payments received, cash moving through accounts. The problem is that flow stops without warning when a client defaults, an injury takes you out, or a market shift dries up the pipeline. An income-protection policy is the wall you build behind that flow so the next drought does not drain you entirely.
The hard part is sizing it. Most people either under-insure — buying cover that looks sufficient today but leaves a brutal gap when the claim hits — or over-insure — locking monthly premiums into long-term contracts that choke cash flow during quiet periods. The calculator here starts from the right number: your essential monthly outgoings, not your income.
What belongs in the monthly outgoings
Income protection is designed to replace survival income, not lifestyle income. Include rent or mortgage, utilities, groceries, insurance premiums, minimum debt payments, childcare, and the quarterly tax set-aside you cannot skip. Exclude discretionary spend — dining out, gym memberships, streaming subscriptions, travel — because those are the first things to go when money tightens anyway.
Two freelance-specific items belong in the list that employees forget:
- Health cover. If you buy your own policy, the premium is an essential outgoing once you have it. It does not count as an existing asset, so it stays in the monthly number.
- Tax set-aside. Quarterly estimated payments are bills you cannot defer without penalty. Any income-protection policy that pays gross income without factoring in the tax drag will over-replace and create a phantom surplus you cannot legally use.
How long to fund
The two competing defaults are "until age 65" and "12 months." The calculator lets you pick, and the choice matters more than most people think.
A long tail — say ten years — is expensive and usually unnecessary. The job of income protection is to carry you through the recovery window, not to replace retirement income. Twelve to thirty-six months covers the vast majority of real-world interruptions: a broken arm, a major client loss, a sick child, a market downturn that takes a couple of quarters to recover from. Beyond that, personal savings and the normal course of a freelance career should be your primary backstop.
The gap math works like this. Fund twelve months of essential expenses and you may find the policy premium itself is cheaper than the opportunity cost of keeping twelve months in cash. Lock in twenty-four months and the premium climbs faster than the benefit — you are paying for months of cover you will never need.
What the emergency fund does and does not do
An emergency fund and income protection are not substitutes; they are a sequence. The fund absorbs small shocks and buys you time to react. Income protection activates when the shock is big enough to outlast the fund — when you cannot work at all, or when you lose a major client and cannot replace it for many months.
Run the numbers backwards from where you want to land. If you need $50,000 of cover to stay afloat for eighteen months, and you already have $15,000 in savings plus a $10,000 emergency fund, the gap the policy fills is $25,000. That figure sets the monthly premium and the total cost, not the full $50,000.
If the gap is zero or negative, stop. Buy the emergency fund first — every extra dollar sitting in cash compounds implicitly against the fear of scarcity — and revisit protection once you have a buffer that clears the monthly-outgoings line by three months at least.
How much does it cost and when does it make sense
Premiums vary by age, occupation, health status, and the length of the waiting period before benefits start. Shorter waiting periods cost more; a 30-day wait is standard, a 90-day wait is cheaper and reasonable if your emergency fund is intact. A rough rule of thumb is 1–3% of annual cover for a healthy freelancer in a stable occupation, rising toward 4–6% for higher-risk trades or older applicants.
The calculator applies a default premium rate of 2% per year of the gap, which is a mid-range estimate for a standard policy. It does not price your specific risk class, and it does not model the tax treatment of benefits (which is usually tax-free if you paid the premium with post-tax dollars). Use the output as a planning target, not a quote.
Estimates only. Income-protection policies differ widely in exclusions, waiting periods, benefit definitions and tax treatment. This calculator models a straightforward gap-fill approach using your stated essential outgoings and a mid-range premium assumption. It does not substitute for a consultation with a licensed broker or insurer, nor does it address disability insurance, critical illness cover, or liability protection — each of which serves a different purpose. See the disclaimer.
Frequently asked questions
How much income protection should a freelancer buy?
Size it against your essential monthly outgoings — rent, food, insurance, minimum debt payments, tax set-aside — not against your income. Multiply that monthly number by the recovery period you want covered (twelve to thirty-six months is typical), subtract any existing savings and emergency fund, and the remainder is the gap the policy should fill. Paying for cover larger than the gap is usually wasteful.
Should income protection replace an emergency fund?
No. They serve different purposes. An emergency fund is liquid cash that absorbs small shocks and buys reaction time. Income protection activates only when the shock is large enough to outlast that cash — when you cannot work at all or cannot replace income for many months. The sequence is usually: build the fund first, then fill the remaining gap with cover.
How long should the cover period be?
Twelve to thirty-six months covers most realistic freelance interruptions — injury, illness, a major client loss, a market downturn. Beyond that you are generally paying for months you will not need. Short-term cover is cheaper and usually sufficient; long-tail cover is expensive and tends to overlap with retirement savings you should be building separately.
Does the policy need to cover my full income?
No. Income protection is meant to fund essentials, not maintain your current lifestyle. Discretionary spend (dining out, travel, entertainment) is the first thing to fall when money tightens, and designing cover around it either inflates the premium or creates a phantom surplus you cannot legally draw on because tax bills remain.
How much does a policy typically cost?
A rough mid-range estimate for a healthy freelancer is 1–3% of annual cover per year, rising to 4–6% for higher-risk occupations or older applicants. The calculator uses 2% as a default — useful as a planning target, but not a quote. Actual premiums depend on age, health, occupation, waiting period and benefit definition.
Are income-protection payouts taxable?
It depends on how you paid the premium. If you paid with post-tax dollars, benefits are usually tax-free. If an employer paid the premium or you used pre-tax dollars, benefits are typically taxable. Freelancers who pay with after-tax business income should check whether their jurisdiction treats the payout as ordinary income or tax-free replacement — the rules vary.