How much life insurance cover do you need if you’re self-employed?

2024-08-02

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The government has constantly stressed the importance of self-employment in India. Statistics show that over 54% of the population in India is youth under the age of 35. The workforce sees an entry of about 15 million every year. The need for self-employment is pivotal for India’s economy. Job creation is the only way out. There are pros of self-employment, such as, you choose your own hours, and have control over your work environment. However, there are always two sides of a coin. There are a few cons of being self-employed. For example, sometimes you have to work for long hours, lack of employee benefits like group insurance plans and unpredictable income.

It is, however, no secret that the self-employed people live hectic lives. Entrepreneurship is a shaky ground, and the risk is high. The employee benefits enjoyed by an employee of the organized sector is something that self-employed workers and freelancers sorely miss. And when being a self-employed professional, you consider buying a life insurance plan, you must figure out the cover that you will need.

How much Life Insurance Cover do you Need if you are Self-employed?

Life insurance policy essentially depends on human value. It enables people to provide for your family or nominee even after their demise. The eligibility depends on the HLV or Human Life Value. This means that you are considered eligible for a life insurance policy only if you have any financial value. This generally includes a steady source of income. However, newer definitions of self-employment are giving rise to a more flexible HLV.

For instance, if you have a regular salary that amounts to ₹ 10 lakhs per annum, the beneficiary will be entitled to a cover of ₹ 1.5 crores. In the absence of a regular salary, the Human Life Value of the policyholder equates to the replacement value of the policyholder for their family.

Learn how much life insurance cover you need.

Self-employed here also refers to homemakers. Homemakers may not earn in terms of wealth, but they are included for HLV. This new inclusion has opened up more opportunities for self-employment and insurance policies.

The best life insurance policy will provide a cover for your family and ease your mind about financial security.

How Banks Handle Insurance for Self-employed Customers?

Application of life insurance for self-employed people is processed differently as opposed to salaried persons. A salaried person buys a life insurance plan mostly in a group. The first step of choosing the best life insurance policy for self-employed people involves a thorough assessment of their current financial situation.

Documents of tax returns and an audit sheet examined by a chartered accountant for any discrepancies in profit and loss of your company will be required. You are also privy to a life insurance policy if you have form 26As examined for details of Tax Deducted at the Source of a taxpayer’s income.

An employee working in a corporate sector gets a life insurance policy, whereas a self-employed individual has no access to such perks. This is pivotal as a self-employed person also needs to provide cover for their family.

It seems rather dubious to invest in the best life insurance for self-employed individuals. After all, they already have a rather uncertain income source. However, life insurance policy is a good investment. It supports the family against unfortunate or accidental deaths.

Since debt is a major part of self-employment, buying a life insurance policy is pivotal for the future of family members. This is because the family may find itself paying back cumbersome loans.

There are six basic needs that are met by an insurance policy for self-employed people:

1. A safety-net to help during emergencies

2. To meet any future financial goals

3. Absence of a direct source of income

4. Support in case of a non-earning partner

5. Support when paying off loans

6. Focus more on business

The self-employed individual usually owns a small business and is prone to borrowing for the sake of their company. This loan may possibly pass on to family members in case of the demise of the policyholder. The coverage from the best life insurance policy will then suffice as financial assistance.

The best life insurance for self-employed people also helps save on taxes, which is a huge advantage for self-employed persons grappling with financial problems. It puts you at ease about fulfilling the financial requirements of your family in your absence, and you can focus on your business.

Choosing the Best Life Insurance Policy for Self-employed Professionals

It is established then that self-employed people do need a life insurance policy to safeguard the interests and future of their families. The best life insurance policy for the self-employed will include the vested interests of the same.

This means that the best life insurance for self-employed persons will have a limited premium or low premium. The low premium allows the self-employed to manage their uncertain incomes. A term life insurance is usually the best for self-employed individuals.

However, the following can also be considered as the best life insurance policy for self-employed:

Annuity Plans
Unit Linked Insurance Plans
Guaranteed Savings Plans

These plans usually procure a guaranteed return on your premium. The choice of the investment lies with you. In the case of ULIPs, you get to direct the investment into multiple assets. It also allows you to extract the return as a monthly income. Annuity plans allow for a safe, long-term pension plan for your loved ones.

Choose the best life insurance policy for self-employed people after assessing your current financial situation. The shifting financial dynamics make it important for self-employed people to secure insurance covers. Insurance policy for self-employed people makes for a financial safety-net. It is important to ascertain financial security that cushions undetermined salaries. This, along with the need to provide for the family, is why a life insurance policy for self-employed individuals is important.

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