Understanding Term Insurance for the Self-Employed: How to Use a Term Plan Calculator to Secure Your Future

Self-employed individuals often lack benefits like group health or pension plans, making financial security dependent on their resource management. Term insurance is a simple and effective way to secure their family’s financial future. This article explains why term insurance for self employed is necessary and how a term plan calculator will help choose the best policy for their specific needs.

Why Self-Employed Individuals Need Term Insurance

Term insurance is often considered the simplest type of life insurance available. Unlike whole life insurance or endowment plans with maturity benefits, term insurance provides pure protection to the policyholder’s family. The sum assured, received by designated nominees in the event of the policyholder’s demise, can cover daily expenses, debts or long-term goals. So, if you are self-employed and looking to secure your family’s financial security, here are a few reasons why it is essential. 

1. Financial Protection for Your Family: As the sole breadwinner, term insurance will ensure that your family can afford that lifestyle and that all financial commitments can be paid off in your absence.
2. Affordable and High Coverage: Term insurance offers relatively low premiums for high cover amounts.
3. Debt Repayment: Most self-employed individuals borrow money to pursue their business. Term insurance covers the debts so that they do not turn into a burden on the family.
4. Customisable Plans: You can tailor the policy to your needs by adding features such as critical illness coverage or accidental death benefits.
5. Tax Benefits: Premiums paid for term insurance are eligible for tax deductions under Section 80C of the Income Tax Act, and the death benefit is tax-free under Section 10(10D).

How to Use a Term Plan Calculator

A term plan calculator is an easily accessible online application that helps calculate the premium for your term insurance policy. Here is a step-by-step process for using this calculator: 

Step 1: Enter Basic Details 

The first step is to enter basic details like age, gender and smoking status. Non-smokers usually have lower premiums because of lower health risks.

Step 2: Choose the Amount 

Decide on the sum assured, which is the amount your family will receive, and the duration of the policy. The ideal coverage is 10-15 times your annual income. 

Step 3: Add Optional Riders 

Enhance your policy with add-on features like a critical illness rider, accidental death benefit, and waiver premium rider. These added provisions provide further financial support in specific situations. 

Step 4: Premium Review 

The calculator will now generate the expected premium based on the details you have entered. You can increase and decrease the coverage amount or the policy term to see its effect on premium changes. 

Step 5: Compare Plans 

Use the calculator to compare multiple policies offered by different insurance companies. Look for a balance between affordability and adequate coverage. 

Documents Required to Buy Term Insurance for Self-Employed 

Below is the list of required documents:

• PAN Card/Form 60: Valid official identification.
• ID and Address Proof: Includes Passport, Driving License (DL), and Aadhaar Card.
• Income Proof:
  • Last 2 years’ Income Tax Returns (ITR) with income computation.
  • If unavailable, the last 3 years’ ITRs.
  • Form 26AS.
  • Audited balance sheet and profit-loss statement certified by a CA for the last 2 years.
• Medical Reports: Information on current health conditions and pre-existing illnesses.
• Photographs: Passport-size photographs.

Alternate Documents for Term Insurance

Self-employed individuals can also use alternate documents to secure term insurance. These include:

• Mutual fund SIP investments.
• Credit scores from bureaus.
• Asset ownership details, such as shop or house value (eligible up to 50% of the property value, capped at Rs 2 crore).
• Fixed deposits, portfolio statements, or mutual fund statements (sum up can be up to 1.5 times the value). 

Remember that the required documents may vary; it’s always best to consult your insurance provider.

Conclusion

Term insurance is a financial safety net for self-employed individuals, protecting their entire family against uncertainties. Using a term plan calculator simplifies the process of finding the right policy, estimating premiums, and more. Evaluate your needs, select the best option, and ensure your family’s well-being with the right term insurance.