Self-employed individuals often face challenges such as no employment benefits, uncertain income, no retirement benefits, etc. Planning a term plan for self-employed is important as it provides financial security & mental peace in case of sudden demise of the policyholder. This plan offers death benefits to the nominees of the policyholders to meet the financial responsibilities like debts, loans, any other obligation, etc., hence assuring the financial requirements are met & lifestyle is also maintained.
Examples of Self Employed Individuals
Self-employed individuals are individuals who work for themselves, rather than working for an employer. These individuals either operate through a business or render some specific services, which include the following:
- Writers, designers, consultants for various clients & not employees,also known as freelancers.
- Café owners, small shop owners, restaurants, etc.
- Plumbers, electricians, etc., working independently on different projects for varied clients.
- Gig workers who earn their wages through short-term tasks, mainly through an online application or platform.
Types of Term Insurance Plans for Self Employed
Provided below are the types of term insurance plans for self-employed individuals:
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Increasing Term Insurance Plans
Under this type of plan, the amount of sum assured increases annually by a pre-specified amount. This means the coverage amount increases, but the premium amount remains the same.
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Decreasing Term Insurance Plans
Under this plan, the amount of the sum assured reduces at a pre-determined rate according to the remaining loan amount annually. But here, the premium amount remains the same, which makes this plan cost-effective.
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Level Term Insurance Plans
Under this plan, the amount of sum assured remains constant throughout the policy tenure.
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Term Plans with Return of Premium
Under this plan, the policyholder will receive a return of premium paid throughout the policy tenure at the time of maturity if he/ she survives the maturity period.
Reasons to Buy a Term Plan for Self Employed
Provided below are the reasons one should think of purchasing a term plan for self-employed individuals:
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Financial Protection
A term plan offers financial protection in case of sudden demise of a policyholder. The death benefit received will help to meet the financial obligations of the family members in the absence of the policyholder.
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Optimal Coverage
This plan provides a suitable sum assured which provides financial protection against uncertainties. One should opt for optimal coverage, which will help meet the financial obligation of the family members in the absence of the policyholder.
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Affordable
Term plans offer quite an affordable premium with flexibility in tenures, i.e. either regular or limited premium payments.
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Business Continuity
This plan offers financial support in case of the sudden demise of the policyholder, which will help in business continuity.
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Tax Benefits
The premium amount paid is eligible to receive deductions of tax u/s 80C of the Income Tax Act, 1961. This benefit is considered a financial incentive that encourages a self-employed person to opt for a term plan.
Things to be Kept in Mind while choosing the Best Term Plan for Self-Employed
Provided are the things that should be kept in mind while choosing a Best Term Insurance Plan:
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Sum Assured
One should choose a term plan with an adequate sum assured & coverage amount that will take care of financial requirements.
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Coverage
Choose a term plan with an optimal coverage, features such as accidental death, terminal illness, whole life cover, disability coverage, etc.
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Riders
This feature helps enhance the scope of policy at an added premium cost, hence one should consider riders that can be availed while opting for a term plan.
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Premium
Choose a term plan with an affordable premium cost to avoid any financial hindrances.
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Claim Settlement Ratio
A claim settlement ratio depicts the percentage of claims that are settled to the number of claims raised. Go for an insurance company that has high CSR, as it indicates the frequency of claims settlement.
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Policy Tenure
One should select a policy duration that aligns well with the coverage requirements, where you should go for long-term coverage, if you want to continue work even after retirement.
Documents Required to Buy Term Plan for Self-Employed Individuals
Provided is the list of documents required while applying for a Term Insurance for Self Employed:
- ID & Address Proof:
- Aadhar Card
- Driving License
- Income Tax Return
- Job Card issued by NREGA
- Form 16
- Income Proof:
- Income Tax Returns for the last 2 years
- Form 26 AS
- A CA-certified audited profit & loss Statements along with balance sheets for the last two years, certified by a chartered accountant.
- Passport-sized photographs
Documents related to health conditions & pre-existing illness
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PAN Card or Form 60
How to Choose a Term Plan for Self-Employed Individuals?
Provided are the steps to be followed while planning a term insurance for self-employed individuals:
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Get a Basic Idea
Know the basic terminology of term insurance by knowing about the product&how it works. Whether you are salaried or self-employed, this is an initial step to start with the buying process of a term plan.
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Assess your basic requirements, income & liabilities.
Evaluate the basic requirements from the plan, as well as your income & liabilities, to determine the coverage required.
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Compare all insurance providers.
Compare different insurance companies in the basis of additional riders, premium, discounts, CSR, etc. & choose the one that provides what suits your requirements the most.
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Check out premium rates.
Check for competitive premium rates, keeping its affordability in mind.
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Calculate the coverage amount.
Determine the coverage amount while keeping financial responsibilities & future expenses in mind.
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Select the policy tenure.
Select the policy tenure that aligns with financial responsibilities.
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Go through the policy document.
Go through the policy document carefully after underst&ing the terms & conditions, what is included & what is not, etc.
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Add critical riders, if required
Consider adding critical riders to intensify the coverage.
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Consult a financial advisor
You can also get advice from an insurance agent or a financial advisor about choosing a term plan.
Conclusion
Whether you are a salaried or a self-employed individual, a term insurance is vital for all. It is considered to play a crucial role in maintaining the financial futures of family members. It is an important financial tool that helps provide financial security & mental peace if the requirements are correctly ascertained & proper planning has been done.
