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How much Life Insurance Cover do you need if you’re Self-employed?

dateKnowledge Centre Team dateApril 22, 2021 views231 Views
How much Life Insurance Cover do you need if you’re Self-employed?

The government has constantly stressed the importance of self-employment in India. Statistics show that over 54% of the population in India is youth under the age of 35. The workforce sees an entry of about 15 million every year. The need for self-employment is pivotal for India’s economy. Job creation is the only way out. There are pros of self-employment, such as, you choose your own hours, and have control over your work environment. However, there are always two sides of a coin. There are a few cons of being self-employed. For example, sometimes you have to work for long hours, lack of employee benefits like group insurance plans and unpredictable income.

It is, however, no secret that the self-employed people live hectic lives. Entrepreneurship is a shaky ground, and the risk is high. The employee benefits enjoyed by an employee of the organized sector is something that self-employed workers and freelancers sorely miss. And when being a self-employed professional, you consider buying a life insurance plan, you must figure out the cover that you will need.

How much Life Insurance Cover do you Need if you are Self-employed?

Life insurance policy essentially depends on human value. It enables people to provide for your family or nominee even after their demise. The eligibility depends on the HLV or Human Life Value. This means that you are considered eligible for a life insurance policy only if you have any financial value. This generally includes a steady source of income. However, newer definitions of self-employment are giving rise to a more flexible HLV.

For instance, if you have a regular salary that amounts to ₹ 10 lakhs per annum, the beneficiary will be entitled to a cover of ₹ 1.5 crores. In the absence of a regular salary, the Human Life Value of the policyholder equates to the replacement value of the policyholder for their family.

Learn how much life insurance cover you need.

Self-employed here also refers to homemakers. Homemakers may not earn in terms of wealth, but they are included for HLV. This new inclusion has opened up more opportunities for self-employment and insurance policies.

The best life insurance policy will provide a cover for your family and ease your mind about financial security.

How Banks Handle Insurance for Self-employed Customers?

Application of life insurance for self-employed people is processed differently as opposed to salaried persons. A salaried person buys a life insurance plan mostly in a group. The first step of choosing the best life insurance policy for self-employed people involves a thorough assessment of their current financial situation.

Documents of tax returns and an audit sheet examined by a chartered accountant for any discrepancies in profit and loss of your company will be required. You are also privy to a life insurance policy if you have form 26As examined for details of Tax Deducted at the Source of a taxpayer’s income.

An employee working in a corporate sector gets a life insurance policy, whereas a self-employed individual has no access to such perks. This is pivotal as a self-employed person also needs to provide cover for their family.

It seems rather dubious to invest in the best life insurance for self-employed individuals. After all, they already have a rather uncertain income source. However, life insurance policy is a good investment. It supports the family against unfortunate or accidental deaths.

Since debt is a major part of self-employment, buying a life insurance policy is pivotal for the future of family members. This is because the family may find itself paying back cumbersome loans.

There are six basic needs that are met by an insurance policy for self-employed people:

1. A safety-net to help during emergencies

2. To meet any future financial goals

3. Absence of a direct source of income

4. Support in case of a non-earning partner

5. Support when paying off loans

6. Focus more on business

The self-employed individual usually owns a small business and is prone to borrowing for the sake of their company. This loan may possibly pass on to family members in case of the demise of the policyholder. The coverage from the best life insurance policy will then suffice as financial assistance.

The best life insurance for self-employed people also helps save on taxes, which is a huge advantage for self-employed persons grappling with financial problems. It puts you at ease about fulfilling the financial requirements of your family in your absence, and you can focus on your business.

Choosing the Best Life Insurance Policy for Self-employed Professionals

It is established then that self-employed people do need a life insurance policy to safeguard the interests and future of their families. The best life insurance policy for the self-employed will include the vested interests of the same.

This means that the best life insurance for self-employed persons will have a limited premium or low premium. The low premium allows the self-employed to manage their uncertain incomes. A term life insurance is usually the best for self-employed individuals.

However, the following can also be considered as the best life insurance policy for self-employed:

These plans usually procure a guaranteed return on your premium. The choice of the investment lies with you. In the case of ULIPs, you get to direct the investment into multiple assets. It also allows you to extract the return as a monthly income. Annuity plans allow for a safe, long-term pension plan for your loved ones.

Choose the best life insurance policy for self-employed people after assessing your current financial situation. The shifting financial dynamics make it important for self-employed people to secure insurance covers. Insurance policy for self-employed people makes for a financial safety-net. It is important to ascertain financial security that cushions undetermined salaries. This, along with the need to provide for the family, is why a life insurance policy for self-employed individuals is important.

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Frequently Asked Questions (FAQs) for Life Insurance

The premium is one of the most important factors to consider before buying a policy. Many people buy a life insurance policy with a high sum assured but are unable to process the premiums for the entire premium payment tenure. You can get a better idea of the premium outgo with the premium calculator available in the 'Tools and Calculator' section of

Life insurance plans come with several riders which increase the efficiency of the policy for the buyer. For instance, if you have a history of terminal illness in your family it would be advisable to opt for terminal illness rider with your term insurance. Riders or add-ons help in customising the standard policy benefits for the requirement of different families. The iSelect term insurance plan comes with a built-in cover for terminal illness, and option for protection against accidental death or disability. You can also opt to cover your spouse's life under the same policy by paying an additional premium.

Insurance companies calculate the premiums based on several factors such as age, gender and occupation.

Age:It is one of the biggest factors that influence life insurance premiums. Premiums tend to be low when the life insured is younger as the chances of contracting diseases is low. Young people also opt for policies with longer tenures and pay premiums for a longer duration, which makes the policy cheaper for young people.

Gender:The insurance premium for women is generally lower when it comes to life insurance plans. Women live longer and pose a lesser risk of a claim leading to lower premiums for them.

Lifestyle habits:The premiums for people who smoke or drink is always higher due to higher health risks.

Policy term:Policy terms are also taken into consideration by insurers while deciding the premium amount. Policies with longer tenure are cheaper as compared to short-duration policies.

Mode of purchase: The platform that you use to buy the policy also determines how much you will have to pay for the plan. People who buy life insurance policies online have to pay lower premiums as compared to offline policies.

Occupation:The nature of your work is an important factor that influences the premium amount. Certain occupations like shipping and mining are considered more dangerous as compared to jobs in services industries. The insurance premium rises with the risk profile.

Processing life insurance claim is a transparent and smooth process with Canara HSBC Oriental Bank of Commerce Life Insurance.

In case of the death of the life insured, the nominee will have to intimate the company by filling a Death Claim Form and sending it to the nearest branch office.

Once the form is received, the claim is registered by the insurer.

After the registration of the claim, the company will send the claims pack along with the related forms such as physicianâ s statement form and employer certificate that need to be filled.

Along with the duly filled forms a few documents such as original [policy document, death certificate, copy of bank passbook, hospital or treatment records, photo identification and address proof have to be provided.

The claim is processed on the submission of relevant documents. Once the documents are verified, the claim amount is released post all due diligence.

Household expenses rise with age. The cost of children's education increases along with other lifestyle expenses. The iSelect term plan offers an option to increase the cover according to the life stage. If opted, the insurance cover increases by 25% at every 5-year terminal till the 20th policy year.

Even though a life insurance policy is bought to protect your family in your absence. There are chances of the claim being rejected due to several factors.

False information: If the policyholder provides false information or conceals important information while buying the policy, the insurer has the right to reject the claim after his/her death.

Type of death: Deaths due to suicide in first policy year, intoxication or pre-existing disease is not covered under life insurance.

Premium payment: The payment of premiums on time is of utmost important to avail the benefits of life insurance. Life insurance policy may lapse on the failure to pay the premiums

Nominee details: An insurance company can put the claim on hold if the nominee details have not been filled or not been updated by the policyholder.

Suicide: If the life insured commits suicide within 12 months of buying the policy, the insurance companies generally pay 80% of the total premiums paid.

Buying life insurance online is not only safe but a better option. Online life insurance policies have lower premiums and the individual is not required to visit the insurer's branch or a bank. Online insurance policies also offer higher benefits. Customers should, however, buy online policies only from credible insurers and should check for SSL certificate on the website to ensure that the website is legitimate.

The cost of life insurance policies varies depending on factors like age, gender and occupation. The average cost of life insurance plans, especially term plans, is very low compared to the amount of coverage offered.

An individual is allowed to have multiple life insurance policies. People opt for more than one policy to increase the cover or avoid claim rejection. In case of multiple policies, even if the claim is rejected by one insurer, the beneficiaries may receive the benefit from a different insurer.

Life insurance policies are of different types. In the case of unit-linked or endowment policies the policyholder receives the maturity benefit at the end of the policy term. However, in the case of term insurance plans, there are no maturity benefits. The death benefit is only paid out after the death of the life insured.

When you buy life insurance, the insurance company asks for the nominee details. Only the person named as the nominee in the policy can cash out a life insurance policy in case of death of life insured.

A life insurance policy is generally taken for a specified period. After the policy duration of a term plan gets over, the policy simply terminates and ceases to exist. However, in the case of unit-linked plans or endowment, you can use the policy as a tool for retirement planning and the accumulated corpus is used by the insurer to pay you monthly amounts for your entire life.

If a policyholder purchases a term plan for 25 years and dies during the policy term. The family receives the death benefit. In the case of iSelect term plan, the policy provides four payment options to the beneficiaries. If the regular payment options are chosen the policy works as a source of regular income.

It is a popular misconception that life insurance is only for accidental deaths. A term life insurance plan like iSelect also covers terminal disease along with death. A terminal illness cover is important as health insurance pays only for the cost of treatment and hospitalization, but a terminal illness cover pays you a lump-sum amount which takes care of other expenses. On the other hand, unit-linked policies such as Invest 4G cover death and also provide decent returns for other financial goals such as buying a house of child's education.

It is ideal to buy life insurance in your early 20s because it’s is the time when people have just started with their professional life and so there are lesser responsibilities and financial liabilities to take care of. Also, if you buy life insurance at this age, you will be paying relatively lower insurance premiums since it’s a due fact that mortality rate in case of young people is low. And that is why insurance companies offer lesser premium rates to younger people as they think that they are most likely to be fit and healthier with less chances of filing a claim in future.

Once you have cancelled your life insurance policy, you will instantly lose your life insurance cover. Afterwards, your insurance company will get in touch with you and ask for valid reasons regarding the cancellation of your policy. In case you cancel your life insurance policy within the grace period, i.e. 15 to 30 days, depending on your insurer, then insurance company will reimburse the premium amount paid by you. But, no refunds will be paid to you if the policy is cancelled after the grace period.

Yes, you can take life insurance under Married Women’s Property (MWP) Act, 1984 only if you are a married man and a resident of India. Buying a life insurance plan under MWP Act would be helpful in saving your family’s financial well-being when you are not around. As per this policy, only wife and children would be eligible to receive the death benefits. You can also buy a policy if you are a widower or a divorcee. However, in that case, you can give your child’s name as your beneficiary. It is very simple to buy a life plan under MWP Act. All you need to do is to fill up an MWP addendum while purchasing an insurance policy.

Yes, there are different payment options for you to pay premiums. Here’re some of them

    1. Regular premium payment option – This premium payment option allows you to pay premiums equal to your policy term either monthly, quarterly, half yearly or annually.

    2. Single payment option – Through this premium payment option, you can pay the lump-sum amount in one single payment.

    3. Limited payment option -In this premium payment option, you can pay premiums for a specific period of time less than policy term either monthly, quarterly, half yearly or annually, but benefits of insurance can be enjoyed for a longer period of time.

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