 "Insurance, irdai")
Online insurance platform Policybazaar.com witnessed a 58 per cent year-on-year rise in term insurance sales to self-employed individuals in 2024–25 (FY25), with millennials and Gen Z constituting 88 per cent of buyers. Women made up 15 per cent of self-employed buyers in FY25, up from 9 per cent in FY20. These figures point to the growing awareness among the self-employed regarding the need to buy financial protection for their families.
Key risks
Families of the self-employed face significant financial uncertainty upon the policyholder’s death. “The primary source of income is lost. There may be outstanding personal financial obligations. And there may be business-related debt,” says Vinod Singh, co-founder and chief executive officer (CEO), Finhaat.
Salaried individuals may receive basic term cover from their employers. “Self-employed persons do not have any such cover, which makes it important that they buy adequate protection themselves,” says Varun Agarwal, head of term insurance, Policybazaar.com.
Ideal sum assured
The approach to estimating the required sum assured remains broadly the same. “Basically, your existing assets plus the life cover should be sufficient to provide for all the financial goals, liabilities, and regular expenses of the family,” says Deepesh Raghaw, a Securities and Exchange Board of India registered investment advisor.
Singh adds that the self-employed must also factor in their business liabilities and purchase supplementary term insurance.
Those unable to undertake detailed calculations may adopt a simpler method. “The rule of thumb suggests you purchase a sum assured equal to 10–15 times annual income. If a self-employed person’s income fluctuates, they may buy a cover worth 20–25 times their annual expenses. To that they may add an amount for liabilities and goals,” says Agarwal.
Tenure of the policy
As individuals’ assets grow and they repay their liabilities, their insurance needs reduce. “If a person believes his/her assets will grow adequately to meet the family’s financial goals and future expenses, and all their liabilities will be paid off in, say, 15 years, that should be the tenure of their policy,” says Raghaw.
Agarwal suggests that for most people, a term cover till an age between 60 and 70 suffices.
Essential riders
A few riders are crucial for the self-employed. “If there is a temporary disability, say, like a fracture, it means loss of income for a self-employed individual, which makes it crucial that they buy a personal accident cover,” says Raghaw. (The salaried may perhaps get paid leave for that duration.) Agarwal suggests that accidental death benefit riders are important for younger individuals who use two-wheelers. Singh recommends adding a critical illness rider and a keyman insurance policy to cover business-related risks.
Documentation hassles easing
While many business owners have proof of income in the form of income tax returns (ITRs) and bank statements, others may lack such traditional proof. “Nowadays, insurers are moving towards surrogate proofs to determine a self-employed person’s income,” says Agarwal. Alternative proofs that insurers are using include credit card statements, vehicle ownership records, home loan repayment history, mutual fund statements, credit scores, and Goods and Services Tax (GST) filings.
Managing premium payment
Incomes of self-employed persons tend to fluctuate. For those struggling with lump-sum payments, splitting premiums into monthly instalments can help. “While an annual premium of ₹25,000 may appear burdensome, a monthly payment of ₹2,000 plus is easier to make,” says Agarwal. Alternatively, Raghaw suggests that the self-employed save and invest that amount each month.
Place term cover under MWP Act
- The Married Women’s Property (MWP) Act protects the financial interests of married women by ensuring that properties bought with them as beneficiaries are protected from creditors
- A married man can purchase a life insurance policy on his own life, with his wife and/or children as the beneficiaries, creating a statutory trust that creditors cannot claim
- The policyholder must opt for the MWP Act coverage at the time of purchase; it cannot be added later
- The MWP form must be filled, specifying the beneficiaries (wife and/or children) and their respective shares
