Term insurance is the most basic form of life insurance. Its primary goal is to provide financial assistance to the family members if the policyholder, unfortunately, passes away during the tenure. After death, the nominee gets the death benefit that helps them get monetary assistance to continue with their living standards.
However, most term insurance policies give additional financial protection for life-altering events such as an accident, serious illness, physical impairment caused by an accident, job loss, and so on. You may believe that this type of financial security is only required if you have a 9-to-5 or corporate job, not if you own a business. This is where one is wrong. Being a business owner allows you to make large earnings however, it also exposes you to risk and financial loss. This is why you must be especially concerned for your financial security and the well-being of your loved ones. In this article, we will be talking about the need to buy term insurance for self employed.
Term Insurance and How it Has Changed to Accommodate Self employed Category
Historically, purchasing term insurance as a self employed individual was difficult due to strict financial underwriting standards. Many insurers needed documentation like Form 16 and salary slips, which were unavailable to self employed people. As a result, a sizable section of this population remained uninsured which has put them at financial risk in the event of unanticipated events.
Fortunately, the insurance business has changed to meet the demands of a changing workforce market. In recent years, there has been a noticeable shift towards adopting different criteria to determine applicants’ income and eligibility for term insurance. Instead of depending simply on usual documents, insurers are now using data sources including credit and loan history, purchasing power indicators, and even GST databases to assess the financial viability of self employed individuals. This growth has made term insurance more accessible to self employed individuals, allowing them to secure their financial future and protect their loved ones from any financial troubles.
Why Do Entrepreneurs Need Term Insurance?
Term insurance is required for business owners or entrepreneurs since their families stand to lose a lot of money if they, unfortunately, pass away. Most successful entrepreneurs work 24 hours a day, seven days a week, and rarely take time off. Running a business requires consistency and hard work, and the possibility of losing money is always present. So, having a financial backup is a must, not a luxury. Here are some of the reasons why Entrepreneurs whether they are freelancers or operating their own businesses need to buy term insurance.
1. Helps to protect your income: self employed individuals create their own income. In the unfortunate event of demise event, having term insurance ensures that their dependents are financially secure and safeguarded against the loss of the major breadwinner’s income.
2. Protection against corporate liabilities: Many self employed people run small businesses or work as freelancers, and they may have outstanding loans, debts, or company liabilities. Term insurance for self employed with proper coverage can assist in meeting these financial commitments, keeping them from becoming a burden on remaining family members.
3. Fulfilment of future financial goals: The lump-sum payout given by term insurance can be utilized to support significant life events such as college fees, mortgage payments, or other financial ambitions, ensuring the family’s financial stability.
4. It offers financial help to your family during your absence: One of the most important reasons for businesses to have term insurance for self employed is to provide a consistent stream of income for their loved ones in their absence. A term insurance policy provides a good payout or sum assured, which can let your loved ones continue to live their life. They will not have to modify their lifestyle or let go of their aspirations due to a sudden loss of income. Instead, they will receive a replacement via the term insurance payout.
5. It takes care of pending loans and liabilities: Even in your tragic absence due to death, you would not want your firm to fail and the work you put into it to be in vain, especially given a few outstanding obligations and loans. Unless you leave your firm in capable hands, it may suffer financial difficulties without your presence. A term insurance policy will be required to ensure that any outstanding loans do not jeopardize your future prosperity. The sum assured from a term insurance policy may assist your family and business partners in meeting responsibilities and giving your firm time till someone capable steps forward to run it.
What to Look For in Term Insurance for Entrepreneurs?
With the rise of the self-employment sector, it is critical for individuals to understand their term insurance requirements and make informed decisions.
Choosing the appropriate coverage and options: It is critical to consider the coverage options available around you when you buy term insurance. Individuals should assess their annual income, current loans or debts, financial demands, and their standard of living. While the typical rule of thumb is to choose coverage which is 10x to 20x of annual income, those with considerable financial obligations should choose higher coverage term insurance.
Tenure of the Term Insurance Plan: One of the most important factors to consider when purchasing offline or online term insurance for self employed is the term insurance plan’s duration. A corporate employee may only work till the age of 55-60, necessitating a shorter-term insurance plan. However, as an entrepreneur, you may need to stay involved in your business activities for a longer period of time, possibly up to 65-70 years. Choose a tenure based on your ideal retirement age.
Premium Rates for Term Insurance Policy: To take advantage of the benefits of a term insurance policy, you must pay premiums to your insurer.
Sum Assured Under Term Insurance Policy: When purchasing term insurance for entrepreneurs, it is advisable to calculate the approximate or exact amount of coverage you will require. Choose the sum assured amount carefully because it will provide for your family and meet any company needs for a set period of time. Typically, most people get term insurance based on their existing salary.
So we are saying,
After the pandemic, we have seen an increase in the number of self employed people in India. Though we have witnessed much larger growth after the Pandemic, the country has always had a good number of self employed people. The share of self employed individuals increased from 52.2% in FY18 to 57.3% in FY23 and is expected to rise further. Though being self employed provides freedom and opportunities for growth, it also comes with distinct disadvantages, most notably the lack of employer-sponsored benefits such as life or health insurance. However, the myth that self employed people do not need to buy term insurance or health insurance is far from true. Considering the number of people who are self employed, it is important to discuss the need to buy term insurance for self employed so that they can ensure financial security and stability for themselves and their families.
Visit our website for more posts.