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Term insurance for self-employed individuals provides essential financial protection by covering income replacement, debts, and business continuity in the event of the policyholder's death.
As a self-employed individual, you already have a lot of challenges on your plate. These challenges include dealing with sudden losses, paying employee salaries, managing household expenses, and more. In this case, having a term plan can offer the financial support you need.
Term insurance is a type of life insurance that provides coverage for a specific term or duration. Unlike other life insurance products, such as whole life or endowment policies, term insurance focuses solely on providing a death benefit. In the unfortunate event of the policyholder’s death during the policy term, the nominated beneficiaries receive the predetermined sum assured.
Term insurance for self employed individuals is a type of life insurance plan that offers your family a guaranteed sum in case of your unfortunate passing during the policy term. In other words, it provides essential financial security for a specific period.
To put this in perspective, consider a 35-year-old business owner earning ₹10 lakh annually. They could secure a 1 crore term insurance plan at an affordable premium for 20 years. If the policyholder passes away within this duration, their family members will receive ₹1 crore as the death benefit amount.
This amount will not only replace lost income but can also help settle outstanding loans and maintain the family’s lifestyle. Additionally, it can safeguard children’s education plans and offer tax benefits.
As a self employed individual, you face unique financial challenges that make term insurance essential for your family’s security. Unlike salaried employees, you do not benefit from a fixed monthly income as your earnings may vary based on business conditions. Moreover, you do not receive standard employer benefits like health insurance or retirement pensions.
Therefore, you must independently plan for your family’s future. A self employed insurance policy is a must-have in such a scenario. It can secure your family’s future despite the uncertainties of self-employment. They can use the policy amount to manage their business obligations and achieve their long-term goals without financial stress.
Here are some types of term insurance plans that self employed individuals should consider:
Level term insurance is the most common type of term insurance. It provides a fixed death benefit and premium for the policy term. This predictability makes it an attractive option for self employed individuals looking for consistent coverage at a stable cost.
Decreasing term insurance is designed for those whose financial responsibilities decrease over time, such as paying off a mortgage. The death benefit is reduced at a predetermined rate throughout the policy term, typically aligned with the decreasing debt balance.
Increasing term insurance provides a death benefit that increases over time, usually to keep pace with inflation or increasing financial responsibilities. Premiums for these policies might also increase annually.
Convertible term insurance allows policyholders to convert their term policy into permanent life insurance without undergoing a medical examination. This feature benefits self employed individuals who may want long-term coverage but are currently opting for a more affordable term plan.
Renewable term insurance offers the option to renew the policy at the end of the term without a medical exam, though premiums may increase with each renewal. This plan is ideal for self employed individuals who anticipate needing coverage beyond the initial term but may face higher premiums due to age or health conditions.
A term plan with return of premium riders refunds all or a portion of the premiums paid if the policyholder outlives the term. Although the premiums are higher than standard term insurance, the return on premiums can appeal to those who see it as a forced savings plan.
Group term insurance was traditionally provided by employers to their employees. However, some insurers now offer group term policies to associations, professional groups, or cooperatives designed for freelancers, consultants, and other self employed professionals. By joining such a group, you can benefit from lower premiums and wider coverage than you might find with individual policies.
Term insurance plans are designed keeping in mind the variable nature of self employed individuals’ earnings. They thus come with specialized features that offer flexibility and comprehensive protection.
You can choose to pay premiums monthly, quarterly, or annually based on your cash flow. This flexibility helps you maintain the policy even during lean business periods. Many insurers also offer a grace period for payment during financial constraints.
The coverage amount can be selected based on your income, business value, and future goals. The sum assured can be adjusted as your business grows, ensuring your family’s financial security aligns with your increasing responsibilities.
This feature waives future premium payments if you become disabled or critically ill. It ensures your policy continues even when you cannot work or earn.
Besides the basic sum assured, your family receives additional payouts for accidental death or death due to specific conditions. This enhanced protection provides extra financial security when your family needs it most.
You have the flexibility to convert your term plan into an endowment or whole life policy later. You can thus adapt your insurance coverage as your financial situation and protection needs evolve.
Take a closer look at the reasons why a self employed individual should opt for term insurance for family :
Term insurance for self employed acts as a reliable financial shield by paying your family a lump sum payout in the event of an untimely death. This payout can help cover essential expenses, maintain their quality of life, and secure their financial future without worrying about sudden income loss.
As a self employed individual, if you are going through a phase of debt, including mortgages, personal loans, or other financial commitments, a term plan can be your savior.
If you own a business or have ongoing projects, your untimely demise could lead to financial disruptions. A term insurance plan can provide funds that help keep your business running or allow your family to settle business liabilities smoothly.
Premiums paid for term insurance plans are eligible for tax deductions under Section 80C of the Income Tax Act. Term insurance tax benefits provide a financial incentive and encourage self employed individuals to prioritize securing their family’s financial future.
The unpredictable nature of self-employment can create uncertainties. Term insurance for business owners brings peace of mind, knowing that loved ones are protected financially in the face of unforeseen circumstances. It allows individuals to focus on their professional pursuits confidently.
Whether you buy a term insurance as a self employed individual or a salaried employee, the basic structure of the policy remains the same.
By paying regular premiums, you secure a predetermined sum that acts as a financial safety net for your family. In the unfortunate event of your passing during the policy term, the assured sum is paid to your nominees. They can use the amount to cover various financial obligations, such as daily living expenses, outstanding debts, children’s education, or business continuity needs.
It is important to note here that the premium amount depends on several factors, like the coverage amount, your age, policy term, and more. It is recommended to buy term insurance as early as possible, as insurers offer lower premium rates to younger buyers.
So, if you have not yet bought the best life insurance for self employed, you must take action now! You can consider reputed insurers that offer a range of comprehensive term plans, helping you ensure your family’s financial stability and peace of mind. Moreover, the customization options available in term insurance plans make them particularly suitable for the uncertain nature of self-employment.
Securing term insurance is important for self employed individuals who are looking to protect personal and business interests. If you are considering to buy such a plan, you must arrange the following documents:
It may so happen that the above income proof documents are not available with a business owner. This is common as business income does not follow a regular pattern, and many self employed individuals like freelancers may not be formally registered.
In such cases, the following documents can serve as financial proof:
Insurers offer a variety of term plan options for self employed individuals, from ₹25 lakh term insurance to ₹5 crore term insurance and more. To ensure that you select the ideal coverage, you must follow these steps:
As a self employed individual, your financial situation differs from traditional employment. Start by evaluating your financial responsibilities, including outstanding loans, business-related debts, and personal obligations. You can select the sum assured amount accordingly. For instance, if your family needs extensive coverage to maintain their lifestyle, you can opt for a ₹2 crore term insurance plan. Alternatively, you can choose a plan with limited coverage, such as ₹50 lakh term insurance.
Unlike employed individuals, self employed individuals often have business-related debts and liabilities. Factor in these business obligations when calculating the coverage amount. This ensures that your term insurance plan adequately addresses personal and business financial responsibilities.
Self employed individuals often experience fluctuations in income and business milestones. Align the policy term with significant milestones in your business plan, such as the launch of a new product, expansion, or the anticipated payoff of major business debts.
Assess the stability of your income as a self employed individual. Consider choosing a term length that covers heightened financial responsibilities or uncertainty. This might include the early stages of business growth or when business loans peak.
Look for term insurance plans that offer premium payment flexibility. Self employed individuals may experience irregular income streams, and having the option to adjust premium payments during lean months can be invaluable.
You should also carefully review the policy documents before finalizing a term insurance plan. These documents include important details like coverage amount, premium structure, claim process, and any payout limitations. You can avoid surprises during the policy term when you gain clarity on what is and isn’t covered. You should also evaluate the insurer’s financial standing by studying the claim settlement ratio , customer reviews, etc.
Given the intricacies of self-employment, consulting with a financial advisor is a prudent step. A professional can help tailor a term insurance plan that aligns with your unique financial situation, business structure, and long-term goals.
While you focus on growing your business, having a term insurance plan ensures that your family’s financial future remains protected, regardless of life’s uncertainties. With a suitable term insurance plan, you can enjoy peace of mind, knowing that your loved ones will have the financial support they need to maintain their lifestyle and pursue their dreams, even if you’re no longer there to provide for them.
Take the first step towards financial security by evaluating your needs, consulting with professionals, and choosing a term insurance for self employed.
1
Yes, self employed individuals and business owners are eligible to apply for term insurance, as long as they meet the insurer’s basic income and age criteria.
2
While income requirements may vary by insurer, most require proof of steady income, typically around ₹2-3 lakh per annum or higher, for eligibility.
3
Yes, premiums paid for term insurance qualify for tax deductions under Section 80C of the Income Tax Act for up to ₹1,50,000.
4
A self employed individual can determine the right coverage amount by evaluating their personal and business financial obligations. This includes calculating income replacement needs, outstanding debts, and future financial goals.
5
Yes, term insurance can help cover business debts by providing a lump sum payout to beneficiaries. This amount can be used to settle outstanding loans.
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You can buy a term policy by following these steps:
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
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