Term Insurance for Self Employed

 

What is Term Insurance for Self-Employed?

When a policyholder passes away during the policy term, term insurance for self-employed individuals offers the named beneficiary/nominee financial coverage (i.e., death benefit), which helps secure their future. For self-employed people, having a term insurance policy can be crucial to offering your family financial security in the event of an untimely death.

The nominees named as beneficiaries can use the death benefit to replace the policyholder's or life assured's lost income, or to pay off loans or other debts. Having term insurance for self employedcan give your family financial security so you can continue to live the way you want and take care of your needs even while the policyholder is not around.

Importance of Term Insurance for Self-Employed

• Financial security for family

  Being a self-employed person, you provide your family with their main source of income. Should you pass away too soon, your family might suffer financially. With term insurance for self employed, your loved ones can pay for debts, mortgages, and their children's schooling, among other costs.

• Loan protection

  If you, as a self employed, are paying any EMIs of home loan, car loan, personal loan, or some other loan, your untimely death can put that entire burden on your family. That is where having an adequate term insurance can provide loan protection to your family and avoid the burden of them having to pay the hefty EMIs. The insurance cover amount would help your nominees take care of such EMIs and other liabilities.

• Tax benefits¹

  The premium you pay towards term insurance for self employed is eligible to be claimed as tax deduction upto Rs 1.5 lakh a year, under Section 80C of income tax act. Also, term insurance tax benefits are also available under Section 10(10D). No tax is levied on the death proceeds that the nominees of the term insurance receive upon the policyholder's death.

• Choice to pay the entire premium at once

  Term insurance plan for self employed offers single premium payment option, wherein you as a policyholder can pay the full premium at the time of policy purchase, instead of doing so on quarterly, monthly or annual basis. The entire premium payment at once helps you get rid of the stress to timely pay other upcoming premiums everytime.

• Business Liabilities

  If a self employed is running a business, having an adequate term insurance can make sure it keeps going even after the policyholder passes away. The term insurance for business owners’ cover ensures that the costs of maintaining the business, including liabilities like EMIs and keeping it running, can be paid for through the death benefit.

• Faces money problems working in the informal sector

  Working as a self employed in the informal sector means facing deep job insecurity, right? Taking care of their family's day to day expenses is in itself a big task for them, let alone the thought of saving or investing for their future. That is why self-employed people should buy a term insurance to protect their family's financial future in case of their unexpected demise.

How Term Insurance Works for Self-Employed/Business Owners?

Similar to salaried persons, term insurance for self-employed people such as lawyers, businessmen, doctors, etc, works no differently. Just the source of income and their proofs is what primarily divides self employed from the salaried class. So, term insurance works simply for self employed/ business owners, i.e. they pay the premium and get the assured sum as cover to secure their family's financial future.

Keep in mind that as a self employed, its even more important for you, vs a salaried person, to buy a term insurance for your family/loved ones as soon as possible. The earlier you buy the term plan, the smaller your premium amount is likely to be. So why wait more? You can buy term insurance for self employed from one of India’s largest insurers, HDFC Life.

How to Choose Term Insurance for Self-employed?

1. Understand Term Insurance

Before you buy any kind of term insurance policy for your family, its absolutely necessary to firstly understand the concept of term insurance and if you have chosen or are comparing policies, ensure to understand them all clearly before hopping onto any decision. Understanding the concept of term insurance for business owners properly would help employed individuals to take an informed decision.

2. Affordability

Another key factor is to check if the chosen term insurance’s premium is affordable for you to pay. Select the premium payment intervals, such as monthly, quarterly or annualsly, as per what suits your pocket. Do not let it be a big burden which may even result in failure to pay the premium timely.

3. Evaluate Policy Features

Self employed should make sure to closely evaluate the term insurance policy’s features, such as premium payment frequency, riders, coverage, etc so that you end uo buying the insurance plan whose features and benefits match your financial needs.

4. Assess Your Needs

You need to firstly assess your financial needs so that you can estimate the insurance cover amount required for securing your family’s financial future. This step would include checking your assets, liabilities (like EMIs), income and expenses, both current and future ones.

5. Consider Riders

Add-on riders are the additional benefits that term insurance offers, such as accident and critical illness riders. Check these riders and get them added if you need them.

6. Assess Claim Settlement Process

When buying the right term insurance, it is equally important for self-employed to assess the claim settlement process of the insurer, which is pretty smooth for India's biggest insurance companies like HDFC Life. Many insurers nowadays offer digital and hassle-free claim settlement process, which is better than going for the physical paperwork one which can be tedious.

7. Read the Fine Print

Do not forget to read the term insurance policy’s fine print, as the devil often lies in the details. Take out extra time and do the efforts of going through such terms and conditions before buying term insurance for self employed.

8. Review Periodically

Buying term insurance for business owners is not the one and only task for self-employed individuals. It is also crucial to periodically check and review the policy, like every quarter or year. Sometimes the insurer may change some conditions or their might be changes levied by regulatory authorities which you need to be aware of.

Key Features of Term Insurance for Self-Employed Individuals

• Flexible-Premium Payments

  Self employed individuals can select from multiple term insurance premium payment options, such as single payment, regular payment over the chosen tenure, or limited pay period wherein you pay the premium for a smaller part of the tenure but the cover continues for the entire period of the policy.

• Customizable Coverage Amounts

  The term insurance for self employed plans often offer the facility of customizable cover amounts, wherein self employed individuals get the flexibility to choose the amount of coverage, such Rs 1 crore term insurance etc.

• Income Replacement Rider

  If the self employed person passes away during the term insurance coverage period, the income replacement rider benefit pays the nominees assured regular payments in parts, which acts as a replacement of the income that the self employed was earning.

• Waiver of Premium Rider

  This feature gives self employed policyholder waiver of premium payments in the unfortunate event wherein they become disabled and are unable to earn.

• Death Benefit Rider

  The death benefit rider ensures that your nominee receives the assured cover payout as per the policy. There is also an accelerated death benefit rider, in which, if policyholders get a terminal illness diagnosis, this feature enables them to receive a portion of the death benefit. This can help pay for medical bills and offer financial support.

• Conversion Option

  Some insurers offer the convertibility option, wherein a term insurance policy can be converted into a permanent life insurance policy, such as whole life insurance.

List of term insurance plans for self-employed individuals

1. Level Term Insurance

For a given tenure—usually 10, 20, or 30 years—level term insurance plan offers a set death benefit. All throughout the policy term, the premium stays the same.

2. Decreasing Term Insurance

As its name suggests, the death benefit from decreasing term insurance gets lesser with time. Usually used to pay off a particular debt, such as a loan, this kind of term insurance policy for self employed individuals has a declining death benefit as the debt gets paid off over the years.

3. Convertible Term Insurance

Convertible term insurance policies let policyholders avoid medical underwriting in order to convert the policy to a permanent life insurance plan, such as whole life insurance. This may be helpful if the policyholder wants to keep their coverage even if their financial circumstances change.

4. Return of Premium (ROP) Term Insurance

Term insurance with return of premium is a policy type that allows the policyholder to get back the premiums paid throughout the tenure if the self employed person survives the policy period.

5. Renewable Term Insurance

When the term ends, renewable term insurance policies let policyholders to extend their coverage without having to go through medical examination. Self-employed people who could see changes in their financial or health circumstances may find this helpful.

6. Group Term Insurance

Self employed members of a trade association or professional association are often eligible for group term insurance at a reduced premium cost.

7. Increasing Term Insurance

The death benefit from increasing term insurance increases with time. Inflation or future financial obligations like EMIs can be covered by this kind of term insurance policy for self-employed individuals.

Summary

A key aspect of self-employed people's financial foundation is term insurance. Its flexibility, low premium cost, and emphasis on risk coverage make it essential for people paving their own professional routes instead of the usual salaried path. As long as self-employed people embrace the entrepreneurial spirit or their professional line, such as lawyers, doctors, etc, including term insurance in their financial plan guarantees that independence will last long. It also gives your loved ones (nominees) more security against the financial uncertainties of life.

FAQs on term insurance for self employed

Q. Can self-employed get term insurance?

Yes. Just like salaried individuals, self-employed people need to show proof of income in order to get a term insurance policy.

Q. What is the minimum income for term insurance?

That usually varies among different insurers and as per their set eligibility criterion. According to your income, the cover amount is given after factoring in the expected premium amount and its affordability for the self employed individual.

Q. Can self-employed individuals avail of tax benefits with term insurance?

Yes of course. Under Section 80C of income tax act, self employed individuals can claim upto Rs 1.5 lakh tax benefit every year. Also, under Section 10(10D), no tax is levied on the death proceeds that the nominees of the term insurance plan receive upon the policyholder's death.

Q. Is a medical check-up mandatory for purchasing term insurance?

Because the insurers are the ones who need to pay for the unidentified health risks of applicants, term insurance plans that do not include medical tests before issuing the policy frequently provide lesser coverage. As medical tests determine a prospective policyholder's general health and fitness, which helps the insurer set rates and issue policies appropriately, buying a term plan that includes medical tests is always a better idea.

Q. Can term insurance cover business debts for self-employed individuals?

As a self-employed person, funds may be needed to purchase machinery, obtain raw materials, and cover other expenses, whether your business is new or established. When you raise money through such large debts like working capital or business loans, you need to adequately take term insurance whose cover can sufficiently take care of the business debts in your absence.