To ensure concrete financial planning for the unforeseen future, term insurance is a widely popular and reliable option. A term cover allows life coverage of the insured-cum-policyholder up to a specific period as per the chosen plan terms. If any mishap happens during this time, then the designated nominee is supposed to receive the sum assured amount. The principal objective of the plan is to ensure the financial stability of the dependent family members during challenging circumstances.
Necessity of term insurance for the self-employed
The income pattern of the self-employed is irregular. So, it is all the more necessary to ensure a stable financial future for the family members. The importance of term insurance for self-employed individuals includes:
Financial protection:
Term plans offer financial coverage against the premature death of the insured-cum-policyholder to the dependent family members by offering a death benefit to the nominee, despite the absence of the chief breadwinner.
Befitting coverage:
Term plans allow maximum levels of sum assured amounts to ensure complete financial coverage protection against unforeseen mishaps. Considering your case scenario, you can decide on your sufficient coverage.
Affordable:
Term plans are especially noted for their cost-effectiveness and affordability, and extensive coverage. Moreover, they offer flexible premium payment tenures throughout the course.
Business continuity:
To ensure easy and uninterrupted business continuity despite your absence, you need to secure funds. Term insurance proves to be the perfect solution in this case.
Tax benefits:
Similar to other life insurance products, term insurance plans also offer tax benefits, u/s 80c and 10 (10d) of the IT Act, 1961.
Choosing the best term plan for the self-employed
As a self-employed individual, you must be extra careful to select the right term plan, especially considering the following factors:
Sum assured:
Since the job tenure and income of self-employed individuals are not guaranteed, it is crucial to choose the right sum assured amount to ensure sufficient coverage during challenging contingencies. Term insurance calculators can come in handy here to decide the right coverage amount. It is best to compare different plans to understand the scenario well and then choose the best-suited one.
It is believed that 10-15 times your current annual income must be the correct sum assured amount. Considering these aspects, it can be said that a 3-crore term insurance is ideal.
Coverage:
Although most term policies allow similar coverage, some plans allow the facility of extending the coverage span by adding suitable riders to it, like terminal illness rider, accidental disablement and death cover, return of premium, whole life coverage protection, etc. Clarify the nature of coverage offered and opt for the one offering the most comprehensive coverage at the most affordable rate.
Riders:
Riders offer optional coverage expansion benefits in exchange for an additional premium. You can add multiple suitable riders to the base plan by paying additional premiums for each of them. However, you must choose them critically so that they do not end up in unnecessary financial drainage.
Premium:
Compare multiple competent plans to know which one is offering the best premium deals, without compromising on the coverage span. The premium amount payment must never prove to be a financial burden, and you should be able to carry it out comfortably without any strain.
Claim settlement ratio:
Always check the CSR of your chosen insurer. It is the Claim Settlement Ratio, which denotes the ratio between the total number of claims raised vs. the total number of claims settled. The higher this percentage is, the better, as the chances of claim settlement remain higher.
Plan term:
Opt for a plan term that aligns with your specific coverage requirements. Ideally, a long-term coverage plan ensures greater protection. There is no specific retirement age for a self-employed individual, and you are eligible to work for as long as you please. Under such circumstances, a long-term coverage term plan will be ideal.
Features of term plans for self-employed individuals
Some of the typical characteristics of term insurance for self-employed individuals include:
Sum assured:
This usually remains unlimited in the case of term plans. Although there might be a minimum threshold limit, the maximum limit usually remains unlimited.
Tenure:
Depending on your requirement, it is best to opt for a longer tenure to ensure a comparatively longer coverage. Certain plans even offer a whole life coverage facility that will aid you even in your old age.
Riders:
Optional rider facility allows you to enhance the coverage extent under standard term plans. You can select befitting riders according to your needs and proceed.
Online plans:
Certain term policies are available online using simple, user-friendly steps. These are much faster and require much less paperwork than offline purchases.
Return of premium:
This allows you to get a refund of the entire premium amount paid so far if you outlive the plan.
Conclusion
Choosing the right sum insured is the key to ensuring sufficient coverage in times of need. It is best to analyse the circumstances critically and then proceed. You can also seek professional guidance.
