by Term insurance for self-employed, or any individual for that matter, is financial protection for beneficiaries in case of untimely demise.
Simply put, it is a financial payout from your insurance provider to the beneficiary when the primary breadwinner or self-employed business person passes away without having time to plan their financials.
Why does a self employed person need term insurance?
Self-employed people are reliant on themselves. There are no pension plans, fixed deposits, or provident funds to cushion the blow if an untimely death befalls them. But their financial obligations remain even in death. That is where the Term Insurance comes to the rescue.
Here’s how term insurance for a self-employed individual can help after an unforeseen circumstance:
- Business obligations:
Being self-employed comes with financial risks. Sometimes, one must take large loans or may fall behind on bills, which creates debt. A businessperson can take such risks based on business plans which will pan out to pay that money back.
However, in case something dreadful happens, resulting in death, the loans and debts still remain and the loved ones may have to bear the load.
The beneficiary can use the term insurance payout during such crucial emotional turmoil, to settle the loans and debts.
- Financial Protection:
Despite the death of the breadwinner, there are still mouths to feed and a household to run.
With the help of a term insurance payout, the beneficiary can sustain the family, pay the bills, and keep everything afloat till they can ideate on another source of income. It considerably reduces the financial load after a sudden loss in the family of the self-employed.
- Business continuity:
There may be a family member or suitable contender already under training to pick up the baton that the deceased left behind. It would take a while to learn, analyze, and prepare to ascend to the throne if the beneficiary chooses to continue the business.
During this time, term insurance payout could keep the functionalities afloat such as salaries, manufacturing costs, etc. based on the self-employed business model till the profits start rolling in again. The money could also be invested into the business for advancements.
- Tax Benefits:
Much like any life insurance plan, term insurance for self employed also offers tax returns. It is capped at 1.5 lakhs as per Section 80C and the amount received upon claiming the term insurance is exempt of tax implications as it is classified under death benefit.
Which term plan is best suited for self employed and why?
A self-employed individual can choose their term insurance plans based on specific factors that apply to their circumstances:
- Increasing term Insurance – In this plan, the insured may foresee a change in the value of the sum assured, taking the rate of inflation and other economic factors into account. Thus, they may choose this term insurance plan that increases the sum assured by a specified percentage each year. A term insurance calculator will help determine the premium which may stay the same but it depends on the insurance provider.
- Decreasing term insurance – For self-employed individuals also acquiring a loan, this type of term insurance works better. The sum assured decreases every year but so does the amount of the loan. The difference in term insurance is used to pay off the loan providers and part of the payout can be used to settle the debts, leaving a considerable amount for loved ones to sustain.
- Term insurance with return on premium – This is an ideal term insurance plan for short-term policies. With this plan, if the insured survives the tenure of their term insurance plan, then the premiums they pay are refunded by the policy provider. It acts as a savings portal without financial loss.
There are also several Riders available to be added to the term insurance plan such as Accidental Deaths, Disabilities, Critical Illnesses, and more. These add-ons can also elevate the benefits during the time of claiming the term insurance plan. A term insurance calculator will help determine the premium upon adding the riders to a policy.
How to Select the Ideal Term Insurance for Self Employed Individuals?
When selecting a suitable term Insurance for Self employed, one must consider the primary circumstances.
If the Term insurance is for a lifetime, which covers the insurer up to 99-100 years, then the increasing policy would be suitable as the value of the sum assured will become significantly lower due to inflation over the years.
If the insured also acquires a loan along with term insurance, then the decreasing policy may be the best fit.
If the insured does not suffer from critical illnesses and is confident of living through their term insurance plan, then the return on premium is the best bet.
If an individual travels constantly or lives in a high-risk environment, then any of the policies coupled with riders for accidents or disabilities could be helpful.
Conclusion
Self-employed individuals take the most risks when it comes to money and they are also in a position to lose more in cases of unforeseen events. Term insurance for self-employed individuals helps navigate the aftermath of such circumstances and eases the pain, if not the grief, of those they leave behind. Choosing an ideal term insurance plan can help sustain the self-employed individual’s legacy, take care of their loved ones, and even help advance their own cause if the premiums mature during their lifetime.
