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India’s dynamic employment ecosystem is rapidly seeing the rise of self-employed individuals. While the pace especially picked up after the pandemic, the country has always had its fair share of population when it comes to self-employment. Precisely, from 52.2% in FY18, the share of self-employed individuals stood at 57.3% in FY23 and only continues to grow further.
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Though being self-employed offers autonomy and growth potential, it also presents unique challenges, notably the lack of employer-sponsored benefits like the protection of life or health insurance. However, the misconception that term insurance isn’t necessary or accessible to self-employed individuals is obsolete.
As this demographic continues to expand, it becomes imperative to explore the various financial tools available to them, particularly term insurance, to ensure financial security and stability for themselves and their families.
Evolving term insurance accessibility
Traditionally, obtaining term insurance as a self-employed individual was challenging due to stringent financial underwriting guidelines. Many insurers required documents such as Form 16 and corporate salary slips, which were often unavailable to self-employed individuals. Consequently, a significant portion of this population remained uninsured, exposing themselves and their families to financial risk in the event of unforeseen circumstances.
Fortunately, the insurance industry has adapted to meet the needs of the changing workforce landscape. In recent years, there has been a notable shift towards using alternative parameters to assess applicants’ income and eligibility for term insurance. Instead of relying solely on traditional documentation, insurers now leverage data sources such as credit and loan history, purchasing power indicators, and even GST databases to evaluate the financial viability of self-employed individuals.
This evolution has led to increased accessibility to term insurance for self-employed individuals, allowing them to secure their financial future and protect their loved ones from potential financial hardships. As a result, the life insurance penetration rate within the self-employed segment has been steadily rising, reflecting the growing awareness of the importance of financial protection among this demographic.
Choosing the right coverage and options available
It’s important to be mindful of the coverage that one chooses in term insurance. Individuals should consider factors such as their annual income, existing loans or debts, financial needs and the standard of living of their dependents. While the general recommendation is to opt for coverage ranging from 10x to 20x of annual income, those with significant financial obligations should go for higher coverage levels.
Self-employed individuals have a variety of term insurance options available to them, including regular term plans, term plans with return of premium at no extra cost and increasing cover term plans. The extent of coverage varies from one insurer to another ranging from Rs 25 lacs to as high as Rs 20 Cr.
Why self-employed individuals must invest in term insurance
Term insurance serves as a crucial safety net for self-employed individuals, providing several benefits:
1. Income protection: Self-employed individuals rely on their own sources to generate income. In the unfortunate event of their demise, term insurance ensures that their dependents are financially secure and protected from the loss of the primary breadwinner’s income.
2. Coverage for business liabilities: Many self-employed individuals are small business owners or freelancers who may have outstanding loans, debts, or business liabilities. Term insurance with adequate coverage can help cover these financial obligations, preventing them from becoming a burden on surviving family members.
3. Fulfillment of future financial goals: The lump-sum payout provided by term insurance can be used to fund important life events such as education expenses, mortgage payments, or other financial goals, ensuring that the family’s financial future remains intact.
With the growth of the self-employment sector, it is essential for individuals to understand their term insurance needs and make informed choices. The industry is offering a range of options and increased accessibility through digital channels to make the experience seamless and transparent for the consumers.
– The author is Business Head – Term Insurance, Policybazaar.com. Views expressed are personal.
Disclaimer: The views and investment tips by experts in this News18.com report are their own and not those of the website or its management. Readers are advised to check with certified experts before making any investment decisions.
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