Being self-employed in India offers you the liberty of operating your own business, but it also entails some financial obligations. A vital component of financial planning for independent contractors is obtaining sufficient life insurance. In contrast to salaried workers, who may be eligible for group insurance through their employers, independent contractors are responsible for managing their own financial safety nets. This is where term insurance for self-employed professionals becomes critical.
In this article, we’ll walk you through the process of selecting the best term insurance plan for your independent contractor business and explain how a term insurance calculator may assist you in making an educated choice.
Why Do Self-Employed Individuals Need Term Insurance?
Now, let us understand why term insurance for self-employed individuals is important. Before getting into that, let us understand what we are going to get into first. Here are some key reasons:
- Lack of Employer-Provided Insurance: It should be noted that insurance in the case of self-employed professionals does not come with an employer’s offering. If something bad happens to you, there’s no one to look over your family’s financial assets.
- Income Variability: Self-employment earnings are irregular for most of them, and one receives different amounts of money per month. When such a situation occurs, you do not want your family further embarrassed by your poor financial status after your death and this is where the benefits of a term insurance policy come in.
- Outstanding Loans and Liabilities: Loans have also been used by many self-employed people as they seek to expand their business, such as business loans, personal loans, and others. Such contingencies will be protected by a term insurance plan, which will in turn, not allow your family to be burdened.
- Financial Protection for Dependents: If you are the breadwinner, it is on your income that your family survives. Term insurance ensures that your dependents are taken care of, covering education, living expenses, and other financial obligations in your absence.
- After understanding the reasons behind having term insurance for self-employed people, let’s proceed towards understanding how to select this insurance policy.
Key Factors to Consider When Choosing Term Insurance
Here are several important factors to keep in mind when selecting the appropriate term insurance:
- Adequate Coverage Amount
The first important decision which needs to be made before selecting the term insurance plan is the extent of risk cover required. For this, it is better to use a term insurance calculator to define the volume of the insurance rate. The best thing is to choose a coverage amount that is at least 10 to 15 times your annual income. But if you have many debts, it may be necessary to indicate a higher amount. The term insurance calculator assists you in evaluating this aspect by calculating your existing loan balance, monthly expenses or future requirements, such as your child’s education.
- Policy Term
On the terms of policy, it’s important to note that much of this should be in an effort to match your policy with the duration of your kinetic financial goals. The length of your policy should be enough to embrace the year your family would most depend on or rely on the policy. When you have young kids, your policy should run until the children are financially capable of running the policy on their own. A term insurance calculator can also help you select the correct policy term and determine how long you will need to sustain the coverage for your family.
- Affordability and Premium Determination
The largest benefit of term insurance is that it offers large coverage to a policyholder at a low cost. As a self-employed person, you need to ensure that the premium you pay will not put too much of a dent in your pocket. Again, this is where the term insurance calculator comes into play yet again – this time to help one arrive at his or her ideal amount.
How Does a Term Insurance Calculator Work?
A term insurance calculator is an online tool that works towards arriving at the amount of coverage that you require, the term of the policy, and the premium that the insured has to pay. It makes your choices easier to make as it neatly presents your insurance needs. Here’s how you can use a term insurance calculator effectively:
- Enter Your Age:
Age particularly affects your premium rates. The premium payable will depend on age at entry into the policy, with the younger generation paying less. - Input Your Income and Expenses:
Please, put your monthly/annual income and your monthly fixed expenses. This will assist the calculator in determining how much coverage you require in order to replace your income for your dependents. - Add Your Liabilities:
This can be done by listing, any debts or balances that are pending on any accounts. This activity makes it possible to cover the amount to meet all expenses such as paying off debts. - Choose the Policy Term:
Choose a policy duration that depends on your age, when you think you will retire, or when your beneficiaries will not be dependent on your income. - Select Riders (Optional):
To add more riders, one will have to choose them during this process of the calculation. Separately, depending on the choice of the riders the calculator will modify the premium.
When you try to determine the coverage of your term insurance, you have to use an appropriate calculator to ensure that it is fit for your financial situation.
Special Considerations for Self-Employed Individuals
While choosing term insurance for self-employed individuals, it’s essential to consider the following:
- Income Fluctuations:
For those whose income fluctuates, you are advised to go for limited pay or Single Premium policies. These choices could help to reduce frequent premium payments when the pocket is not well lined up. - Business Continuity:
If you have a business, you want to consider how you would be impacted if you were not around. You may have to opt for an amount greater than this to meet all the business obligations and expenses that occur. - Tax Benefits:
There are also other benefits of coming under the term insurance plan, for example, the policyholder can also get tax exemption under section 80 C of the Income Tax Act.
Conclusion
Self-employed professionals in India must understand how to select the right term insurance to protect your family’s financial future. With the help of the term insurance calculator, you will be able to decide about the right sum assured and premium that you need according to your coverage. Just make sure to select a programme that you can afford, at the same time providing adequate coverage for your dependents should you die prematurely.
