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Can I Get Life Insurance If I Am Self-employed?

dateKnowledge Centre Team dateMarch 23, 2021 views121 Views
Can I Get Life Insurance If I Am Self-employed?

The short answer would be, ‘yes you can.’ The question should also be about, whether you should buy a life insurance policy and if yes, then why. We need to have a regular income stream for basic survival necessities. It doesn’t matter if you are employed or not. Your monthly income may come from your business, rentals or anything other work that you do. However, with evolving time, life insurance providers have changed the way they work keeping in mind the changing needs and situations.

For example, a mother looking after the household and children is an inseparable part of the family. Even though she’s is not formally employed by definition and does not have a direct income, her contribution to the family and children’s growth is phenomenal.

Should we not consider life insurance for her? Is it possible for homemakers to get a life insurance policy? Let us find out.

How Life Insurance Eligibility is decided?

Life insurance eligibility is based on the human life value of a person. Human life value (HLV) indicates the possible financial value this person will add to the family. Presence of a formal income makes it easier for the life insurers to estimate your HLV. However, with changing income and life scenarios, the principle of HLV has opened up to include the value of work and wealth as well.

For example, if you are employed and have an income of Rs. 10 lakhs per annum, your maximum life cover eligibility is Rs. 1.5 crores. If you do not have an income, such as in the case of a homemaker, HLV is your replacement cost to the family.

Similarly, if you have income from other sources like interest and investment income, you can estimate your HLV based on that.

Why Invest in Life Insurance if you’re Self-employed?

You can use life insurance plans to not only safeguard your family’s future financially against contingencies but also for investments. Apart from term life insurance, which is a pure protection plan, all the other life insurance plans can help you meet different financial goals.

Life insurance plans are unique because of the protection they offer along with the investment. The simultaneous life cover makes these plans fail-proof investments for your goals, especially if they are for your family.

For example, the child’s higher education and marriage goals. Both goals are important milestones in your child’s life. With life insurance plans as investment options, you can ensure that your child can meet these goals even if you are no longer there.

So, life insurance can serve two purposes:

  • Financial safety from unforeseen events
  • Long-term investment for important financial goals

You do not need to have employment or direct income to invest in life insurance plans. You can buy a life insurance plan if you are self-employed. You must have a source of income so that you can pay the premiums of your insurance plan.

Which Life Insurance Plans to Invest in & When?

Based on your financial goals you can invest in the following three types of life insurance plans:

  • Guaranteed Savings Plans
  • Unit Linked Insurance Plans (ULIPs)
  • Annuity Plans (deferred annuity & immediate annuity)

Guaranteed Savings Plan

Guaranteed saving plans, as the name suggests are the safest long-term investment option from life insurance. You can determine the maturity value of a guaranteed investment plan in the beginning before starting the investment.

Since these plans are one of the safest investments, you can use these plans to fulfil goals where you cannot compromise on the goal’s value. For example, the marriage goal of your child.

Marriage goal is one of those financial goals where you should spend only out of your pocket, and avoid overshooting your budget. But, at the same time, you also do not want to compromise on the celebrations.

Thus, a guaranteed savings plan where you can set the maturity goal beforehand is the best option to achieve this goal.

Unit Linked Insurance Plans (ULIPs)

Unit linked insurance plans are the most versatile investment plans from life insurance companies. Few unique aspects of ULIP investments:

  • Invest in multiple asset classes: equity, debt and liquid funds in any ratio
  • Switch between asset classes manually or using automated portfolio management options
  • Enjoy all the tax benefits available to any life insurance plan despite switching between assets

Because of these features, ULIPs are the best long-term wealth-building investments. You can automate your investment and portfolio management in a ULIP plan and let your money grow for the investment period.

You can also use ULIPs as a pension plan using the systematic withdrawal option in the plan. Systematic withdrawal option in ULIP allows you to withdraw the accumulated corpus in the plan as a monthly income.

The best part about this setup is that the income is not taxable coming from a life insurance plan.

Annuity Plans

Life insurers offer two types of annuity plans - deferred annuity and immediate annuity plans. Another name for these plans is pension plans since the primary purpose of these investment plans is to offer a monthly pension.

If you are contributing to retirement solutions like National Pension Scheme (NPS) or Employee Provident Fund (EPF) you will need to invest a part of your corpus into one of the annuity plans.

Annuity plans provide a way to create safe and reliable long-term pension out of your retirement corpus. If you are investing at the time of retirement and want to start your pension immediately, immediate annuity option is for you.

However, if you want to invest now and start pension later, you can go for the deferred annuity option.

Also, unlike ULIPs monthly income from a pension plan is taxable as salary income. Thus, including ULIP investment to your retirement portfolio early on will help you reduce your tax burden post-retirement.

You can also invest in annuity plans without formal employment. All you need is a large enough corpus and a goal in mind about how to use it for your future.

What Documents are Required to Buy a Life Insurance Plan for Self-employed Professionals?

You will be required to submit a few essential documents while buying a life insurance policy. Ensure that you share accurate information and documents with the insurance provider to avoid rejection of policy.

Here’s the list of documents that you must keep handy (any one):

  • Latest 2 years Income Tax Returns. Make sure that the returns are not filed in the same year along with computation of income.
  • If computation of income statement is not available, you should have last 3 years income tax returns. Ensure that the returns are not filed in the same year.
  • CA certified audited balance sheet and profit loss account of last 2 years.
  • Form 26AS – it provides details of TDS or TCS from various sources of income of a taxpayer.

Life insurance providers have started considering alternative documents to help self-employed people buy a life insurance cover they need. Self-employed professionals can now increase their cover eligibility, which will be considered:

Based on Calculation of your Annual Income

  • As a multiple of the Ex-showroom price of your car
  • As a multiple of the amount that you invest monthly in mutual funds
  • As a multiple of your credit card limit
  • As a multiple of the monthly EMI on your home loan

Based on Calculation of Assets Owned

  • Sum assured eligibility amounting to 50 percent of the house/shop owned by you that has a maximum value of Rs.2 Crore.
  • Sum assured amounting to 1.5 times the mutual fund, fixed deposit, portfolio statements held by you.

Running a business has its own challenges. We may end up procrastinating about the responsibilities that we have for our loved ones. Get a backseat and focus on your business and secure your family with the best life insurance plan. It is designed for everyone – whether you are a salaried professional or you are self-employed – a life insurance plan acts as a cushion for your family members in case of an unforeseen event.

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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 www.canarahsbclife.com.

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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