According to Santosh Agarwal, CBO-Life Insurance, Policybazaar, it is crucial that self-employed individuals have adequate financial insurance-backed protection for their family.
Term insurance provides coverage for a pre-defined period. If the policyholder expires during this period, the nominee of the policy receives the death benefit. While it is imperative for every individual to have a term plan, self-employed individuals should be extra cautious while choosing the plans.
Importance Of Term Plan
Unlike corporate employees, self-employed professionals do not have company provided insurance covers. This means, they have to completely rely on the plans they purchase.
According to Santosh Agarwal, CBO-Life Insurance, Policybazaar, it is crucial that self-employed individuals have adequate financial insurance-backed protection for their family.
Most self-employed individuals have an uneven source of income and they often compromise with savings and investments in the short run for big earnings in the long run. Apart from household liabilities, a self-employed individual is also personally liable to debts and liabilities with respect to the business — known as business liabilities,” he explains.
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With term plans, they can get rid of the risk of leaving behind financial liabilities in case tragedy befalls them during the plan term.
Factors To Consider
While choosing plans, entrepreneurs and self-employed professionals should prefer shorter premium payment term as they have variable incomes, explains Naval Goel, chief executive officer and founder, PolicyX.
While the income is on the rise, they can pay off all premiums and enjoy risk protection until an advanced age.
Moreover, as a self-employed person, they may continue earning beyond the usual retirement age of salaried people, i.e. 60 years. Thus, longer risk coverage is appropriate as an income replacement in this case.
Agarwal of Policybazaar explains this with an example.
“Suppose, a 35 year-old entrepreneur picks up a policy tenure of 35 years, with a 10 years premium payment term. His payments will be over by the time he becomes 45 years old. Yet, he will enjoy life coverage until he is 70,” Agarwal illustrates.
In a limited pay plan, the premium payment term is complete within a few years. As a result, policyholders can enjoy extended coverage even if they lack the surplus income for servicing the policy later in life. This plan is useful if policyholders have doubts about their capacity to pay the premiums to the full, opines Agarwal.
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