Term Insurance for Self-Employed Individuals: why it is non-negotiable

As a self-employed individual, dealing with financial inconsistency is a regular matter. Since your income is not fixed and guaranteed, you have to face occasional challenges like sudden loss, dealing with legal issues, paying employee salaries, clearing outstanding dues, etc. A term plan can save your day under such challenging circumstances.

There are special provisions for term insurance for self-employed. Term plans are special life insurance products offering coverage for a pre-defined duration. However, unlike endowment or whole-life plans, term policies solely provide death benefits only. In the case of any unfortunate event of the policyholder, the designated beneficiaries will receive the insurance amount during claim settlement.

What is term insurance for self-employed?

Term insurance for self-employed is a special life insurance variant allowing the family an ensure financial security despite the absence of the policyholder during the policy period.

This death benefit must be sufficient enough to replace the lost income, handle the static household expenses, and pay the outstanding dues and loans, all without hampering the existing lifestyle. Moreover, it can guard the educational future of children. Apart from these, there exists term insurance tax benefit too.

Importance of term insurance for self-employed

The types of financial challenges faced by a self-employed individual are unique and often unpredictable. Unlike salaried individuals, self-employed people do not enjoy the security of a fixed monthly income as the income rate varies with the altering business circumstances. Moreover, you are also bereft of employer health plans or post-retirement pension benefits. Considering such unprecedented challenges, it is essential to maintain a reliable term plan.

So, independent and reliable financial planning is crucial to ensure the financial security of your family, especially if you are the sole breadwinner in the family. Your family can utilise the death benefit amount to handle the family finances, business dues, and other necessary financial targets without much stress.

Features of term insurance for self-employed individuals

Term plans for self-employed individuals have been typically designed with income inconsistencies in mind. Some of such highlighting features include:

Flexible premium payment options:
Depending on your preference and convenience, you can pay the premiums either monthly, quarterly, or yearly. This helps you to maintain the plan even during tough and weak periods in business.
Customisable coverage:
You can choose the coverage amount depending on your financial status, targets, business value, and income status. You can even adjust the sum assured amount according to your business growth, considering your altering familial needs.
Premium waiver rider:
In case you, unfortunately, become disabled or critically sick, this rider waives the remaining premiums, thus releasing your financial stress to a considerable extent. But your policy remains active and valid, even if you cannot pay the premiums.
Death benefit rider:
Depending on the terms of the chosen term policy, your family is eligible to receive certain special payouts apart from the standard sum assured amount if accidental death happens or it happens under certain specific conditions. This is an additional layer of financial security that your family may receive during tough and challenging times.
Conversion:
If you maintain an active term plan, you have the freedom to alter it to a whole life policy or an endowment plan, depending on your altering requirements.

Necessity of term plans for self-employed individuals

Some of the most highlighting necessities of term insurance include the following:

Financial protection:
Term plans for self-employed acts as a protective shield through a lumpsum payout to the family during contingencies. This payout can be utilised to handle household expenses, retain the standard of living, and manage all outstanding loans and debts.
Debt coverage:
In case you are passing through a challenging phase as a self-employed individual, including personal loans, debts, mortgages, or other financial obligations, your term plan may save you a day.
Business continuation:
Your business may face sudden, unprecedented challenges in your absence, leading to gross financial disruptions. Under such circumstances, your term plan can efficiently handle such situations and keep your business running.
Tax benefits:
Term insurance tax benefit is another crucial factor for investment. The premiums paid towards the term plan are eligible for tax deductions u/s 80C of the IT Act. It acts as a financial incentive, encouraging self-employed people to invest in this field and secure the family’s future.
Peace of mind:
Uncertainty is a constant in the lives of self-employed people. Term plans bring peace of mind by ensuring financial protection to the family, especially during unforeseen, challenging circumstances.

Documents required to purchase a term plan for self-employed individuals

The list of documents essential for purchasing term insurance for self-employed individuals includes:

Identity proof (passport/AADHAAR card/voter card/DL/PAN card)
Address proof (birth certificate/passport/AADHAAR card/PAN card/DL)
Income proof (IT returns of the preceding years/ Form 26 AS for TDS information, TCS, and advance tax payment details)
Business registration certificate
GST registration (if applicable)
Trade license
Partnership deed (if applicable)

However, in the absence of any or all of the income-proof documents, you need to submit vehicle RC/mutual fund SIP records/credit card limit details and credit score.