These days, self-employment or freelancing is preferred over a traditional full-time paid job. However, when people leave their corporate jobs for self-employment, they typically lose a source of regular income and employer-sponsored insurance benefits.
Securing term insurance if you are self-employed is essential to safeguard the family’s interests in case something unfortunate happens to you. The sum assured amount will help your loved ones manage their expenses, outstanding debts, and more when you are no longer there. One of the best moves you can make to ensure your loved ones are adequately covered is to buy a 1 crore term insurance. Read on to learn why a self-employed person should buy a 1 crore term insurance plan.
What is Term Insurance?
Term insurance is a sort of life insurance policy that covers the most valuable asset, i.e., life. It provides adequate financial coverage to the nominee upon the death of the insured individual during the policy tenure. Just like full-time professionals, self-employed people need a term insurance plan to ensure their loved ones will be taken care of if they pass away. Typically, the policy does not give any benefit on maturity. However, with the option of Return of Premium, you can get back the premiums that have been paid, in the form of a maturity benefit.
While buying term insurance, you should take into account various factors like your age, annual income, dependents, financial obligations, loved ones’ goals/dreams, etc. Based on these factors, you will make an informed decision while choosing the policy tenure.
The figure of 1 crore sum assured or 5 crore term insurance may sound excessive to you. However, when you consider how your family will find a source of income, repay business-related debts, or other outstanding amounts in your absence, this may look like a realistic coverage benefit you should consider.
Why Term Insurance is Essential for Self-Employed?
- Financial Security
One of the main reasons to have term insurance is to safeguard your family financially if you pass away. If you are a breadwinner for your family, your loved ones will need a stable source of income if you are no longer around to earn. - Affordable Premiums
Term insurance can easily have a tenure of 30 – 40 years or more. It is the most affordable option for self-employed individuals. Its premiums are much lower than those of other savings/ investment-linked plans.
3. Outstanding Loan Protection
The death benefit from a term insurance policy can help your family pay off business-related debts or outstanding loans, such as a car loan, credit card bill, or home loan etc.
4. Peace of Mind
As a self-employed individual, you do not have an employer-sponsored insurance plan. Term insurance is a pure life protection plan that ensures your peace of mind, knowing that your loved ones are well-protected in case a tragedy strikes.
5. Tax Benefit
The premium paid towards a life insurance plan is eligible for a deduction under Section 80C of up to Rs. 1.5 lakhs. The death benefit received by the nominee is tax-free.
Is 1 Crore Term Insurance the Right Coverage?
The coverage that you choose for your family is a personal decision. You need to factor in these aspects:
- Income
Remember, the general rule of thumb before buying the policy is that it should be at least 10-15 times your annual income. For instance, if you are earning 10 lakh rupees per year, you should get coverage of up to 1 crore rupees. - Liabilities
If you have financial liabilities such as personal and business loans, consider buying a higher coverage benefit so that repaying them will not be a financial burden for your family. - Dependents
The greater the number of dependents you have, the higher the coverage amount you may need. - Long-Term Financial Goals
Take into account your family’s long-term financial obligations, including marriage, higher education, etc. - Inflation
As the inflation continues to rise, 1 crore coverage will not give the same benefit after 20 years as it does today.
Conclusion
For self-employed individuals, buying a term insurance plan should not be a difficult decision. It is a vital financial safety net you should give your loved ones today. While 1 crore term insurance is an attractive coverage benefit, you should consider your circumstances, like age, dependents, income, and long-term financial goals, before buying.
