Income proof is one of the most important documents to be provided when purchasing term insurance and is mandated by the IRDAI. Let’s delve into why income proof is an important document and why you cannot buy term insurance without income proof.
What is Term Insurance?
It is a type of life insurance offering coverage for a specified period or "term." If the policyholder passes away during this term, the nominee receives the death benefit. Unlike other types of life insurance, term insurance does not have a savings component; it purely offers life coverage.
The simplicity and affordability of term insurance plans make them a popular choice for many. Term life insurance plans are known to be one of the most cost-effective life insurance options.
Importance of Income Proof in Term Insurance
Income proof is typically required by insurance companies for several reasons:
- Assessment of Premium Payment Ability: Insurers need to ensure that the policyholder can afford to pay the premiums throughout the term.
- Determining Sum Assured: The sum assured, or the coverage amount, is often linked to the policyholder’s income.
- Risk Evaluation: Insurers evaluate the risk of insuring an individual based on their financial stability.
In addition to this, the IRDAI website mentions the following –
“By ascertaining the income earned by the life proposed through valid income proof, the Life Insurer assesses the commensurate need for Insurance, requirement of quantum of Insurance as well as premium paying capacity. This will ensure that people with no or little income do not obtain disproportionately high sum assured policies by concealing their real income/sources putting the Insurer on high risk. Life Insurers pay the claims out of premiums paid by all other policy holders which the Insurer holds in fiduciary capacity. Further, Prevention of Money Laundering Act, 2002 also mandates that all financial institutions including Life Insurance Companies shall verify and document the legal sources of income before issuing financial products.”
What Documents are Accepted as Income Proof?
When purchasing term insurance, the documents accepted as income proof may vary based on whether you are a salaried individual, a freelancer, or a business owner.
Some of the documents commonly accepted as income proof when buying term insurance are:
- Salary slips (past three months)
- Income Tax Returns (past three years)
- Bank statements (reflecting salary for the past six months)
- Latest Form 16
- CA certificate (issued in the last two months)
- Profit & Loss Statement and Balance Sheet (for last three years)
- Latest Form 26 AS
It is ideal to confirm with your insurance provider as to which of the documents may be acceptable as income proof for you. It will usually be determined based on your profession and income source.
How to Choose the Right Term Insurance Plan
When selecting a term insurance plan, consider the following factors:
Choose a sum assured that adequately covers your family’s financial needs, including debts, education expenses, and living costs.
Select a policy term that aligns with your financial goals and the period during which your dependents will need financial support.
Opt for a reputable insurer with a strong claim settlement ratio. This ensures that your family will receive the death benefit without undue hassle.
Consider adding riders such as critical illness or accidental death benefits to enhance your coverage. These riders provide additional protection against specific risks.
Ensure that the premium fits within your budget. Use a term insurance calculator to compare premiums for different plans and find one that offers the best value.
Using a Term Insurance Calculator
A term insurance calculator is a valuable tool that can help you determine the premium and coverage you might need. By inputting basic details such as age, coverage amount, and term length, you can get an estimate of the premium. This tool is useful for comparing different term insurance plans and finding one that fits your requirements and budget.
Securing a term insurance plan is a crucial step in ensuring the financial stability of your loved ones in the event of your untimely demise. However, many individuals face the challenge of providing income proof when applying for term insurance in India. Having relevant income proof is necessary if you are looking to buy term insurance. You may consult your insurance provider to figure out what the right documents may be for you in this case.
Disclaimers:
IndiaFirst Life Insurance Company Limited, IRDAI Regn No.143, CIN: U66010MH2008PLC183679, Address: 12th & 13th floor, North [C] Wing, Tower 4, Nesco IT Park, Nesco Center, Western Express Highway, Goregaon (East), Mumbai – 400 063. Toll free No – 18002098700. Email Id:customer.first@indiafirstlife.com, Website:www.indiafirstlife.com, Fax No. +91226570600. IndiaFirst Life Insurance Company Limited is only the name of the Life Insurance Company. These are only the names of the Life Insurance Products and does not in any way indicate the quality of the contract, its future prospects, or returns. For more details on risk factors and terms and conditions, please read the sales brochure carefully before concluding the sale. Trade logo displayed above belongs to M/s Bank of Baroda and is used by IndiaFirst Life Insurance Co. Ltd. under license. Advt. Ref. No.:_____________.
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