What is Term Insurance for Self-Employed Individuals?
It is a type of life insurance policy providing coverage for a specified term or period. Unlike some other types of life covers, level term insurance plans do not offer a cash value component. Instead, it offers a death benefit to the policyholder’s beneficiaries if they pass away during the policy term. This makes term insurance for self-employed individuals a cost-effective option, especially for those who are self-employed and may not have a steady income. The primary purpose is to ensure that the policyholder's dependents are financially secure, even in the absence of the policyholder.
Importance of Term Insurance for Self-Employed Individuals
Some of the key reasons why a term life insurance policy for self-employed people becomes important are:
Financial protection for the family
Term insurance ensures your family remains financially stable even if you are no longer there to provide for them. This is especially crucial for self-employed individuals who do not have employer-provided life insurance benefits.
Term insurance policies typically have lower premiums compared to whole life insurance plans. It is a cost-effective option for those who are self-employed and may have fluctuating income.
Coverage for business debts
People setting up their own businesses may have business-related liabilities, such as loans. Freelancers may have personal liabilities. For people who are self-employed, term insurance can provide coverage that helps repay these debts, ensuring that your family is not burdened with your financial obligations.
Lesser worries of the future
Knowing that your loved ones will be taken care of in case of your untimely demise can provide immense peace of mind. It is particularly important for self-employed individuals who may face more financial uncertainties.
Flexible coverage options
Term insurance plans offer various coverage options, allowing self-employed individuals to choose a policy fitting their specific needs. Depending on your lifestyle and needs, you may choose a suitable sum assured, such as ₹1 crore term insurance if you are looking to support your child’s education, or more if you want to help them pursue their career dreams as well.
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What are the Key Features of Term Insurance for Self-Employed Individuals?
Some of the fundamental features of term insurance to take note of are:
Many term insurance plans for self-employed individuals offer customisable options allowing policyholders to tailor their coverage according to their needs and financial situation.
High coverage at low cost
Self-employed term insurance policies often provide high coverage amounts at relatively low premiums. It is an attractive option for individuals seeking substantial protection without a heavy financial burden.
Premiums paid towards term insurance plans are eligible for tax deductions under Section 80C of the Income Tax Act, providing additional financial relief.
Term insurance policies typically offer various riders, such as critical illness riders or accidental death benefit riders, which can enhance the coverage for self-employed individuals.
What are the Types of Term Insurance Plans for Self-employed Individuals
There are a variety of term life insurance plan options available in India. While their availability may vary across insurance providers, it is crucial for customers to understand these types to be able to make an informed choice.
This is the most common type of term insurance where the sum assured remains constant throughout the policy term. If you are self-employed, term insurance of this type can be suitable as it is low cost and offers stable coverage.
Increasing Term Insurance
In this plan, the sum assured increases over time, usually at a predetermined rate. This is suitable for self-employed individuals who anticipate an increase in financial responsibilities as their business grows.
Decreasing Term Insurance
This type of term life insurance plan is designed for individuals with decreasing liabilities, such as a mortgage. The sum assured decreases over time, aligning with the decreasing debt. It’s a cost-effective option for self-employed individuals with significant loans.
Return of Premium Term Insurance
Under this plan, the premiums paid during the policy term are returned to the policyholder if they outlive the policy term. This can be a good option for self-employed individuals looking for a balance between life coverage and savings.
Select the Right Term Insurance for Self-Employed Individuals?
Term insurance for self-employed individuals provides affordable life coverage for a specific period. Although it is considered cost-effective, a term life insurance plan purchase is ideally a long-term decision that is bound to affect your loved ones.
Here’s how to select a plan best fitting for you.
Assess your financial needs
Determine the amount of coverage you need based on your financial responsibilities, including dependents, loans, and future expenses.
Use a term insurance calculator
Use online term insurance calculators to estimate the appropriate coverage amount and premium based on your income and financial goals.
Compare different term insurance policies to find one that offers the best combination of coverage, premium, and additional benefits such as riders.
Check insurer’s reputation
Ensure that the insurer you choose has a good claim settlement ratio and a strong financial standing.
Choose a policy term aligning with your financial goals, such as covering a specific debt or ensuring your children’s education.
Documents Required to Buy Term Insurance for Self-employed Individuals
Documents required when buying life insurance, especially for self-employed people, are essential for verifying the identity, address, income, and business status of the individual.
Document Type
| Examples
|
Proof of Identity
| PAN Card, Aadhar Card, Passport
|
Proof of Address
| Utility bills, Aadhar Card, Passport
|
Proof of Income
| Income tax returns, Bank statements
|
Business Proof
| Business registration certificate, GST certificate
|
Age Proof
| Birth certificate, Passport, Aadhar Card
|
The right term insurance plan should offer adequate coverage without requiring you to break the bank. Use our easy-to-navigate term insurance calculator to quickly estimate your premium with no hassle.
Frequently Asked Questions (FAQs)
What is the minimum income requirement to purchase term insurance of ₹1.5 crore?
The minimum income requirement varies depending on the insurer. Generally, an annual income of at least ₹6-7 lakh is required to purchase a ₹1.5 crore term insurance.
Can self-employed individuals avail of tax benefits with term insurance?
Yes, self-employed individuals can avail of tax benefits under Section 80C of the Income Tax Act for premiums paid towards a term insurance policy.
Can term insurance cover business debts for self-employed individuals?
Yes, term insurance can be used to cover business debts, ensuring that your family is not burdened with financial liabilities in your absence.
How do I apply for a term insurance plan for self-employed people?
You can apply for term insurance online or through an insurance agent by providing necessary documents such as proof of income, identity, and business registration.
How much will term insurance cost me as a self-employed individual?
The cost of a term insurance policy for self-employed people depends on factors such as the sum assured, policy term, age, health, and the type of plan selected.