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Buy Term Insurance for Self-Employed/Freelancers in India 2025

In an era of rising entrepreneurship and self-employment, financial security is critical. Self-employed people do not have the benefit of employer-provided insurance or pension plans, so it is critical that they create their own financial backup.

A term insurance plan ensures that their dependents will not face unexpected financial difficulties. It also benefits those with outstanding loans, business obligations, or significant financial responsibilities by providing a safety net for themselves and their families.

Table Of Content

Insights Into Term Insurance Plan for Self-Employed

Here is an overview of a term insurance plan for self-employed individuals:

Feature	Description
Coverage Amount	The sum assured will be paid to the nominee in case of the policyholder’s death.
Policy Term	Typically the duration ranges from 5 to 40 years.
Premium	The amount paid periodically (monthly, quarterly, annually) to keep the policy active.
Riders/Add-ons	Critical Illness, Accidental Death Benefit, Terminal Illness, Disability Benefit.
Tax Benefits	Deductions are available under sections like 80C and 10(10D) of the Income Tax Act.
Medical Examination	Depending on the coverage amount and age it may require health check-ups.

What is Term Insurance for Self-Employed?

Term insurance is a simple and affordable life insurance policy that provides financial coverage to the policyholder’s family in case of their untimely death. For self-employed individuals, term insurance acts as a safety net, offering financial stability to dependents.

Unlike salaried individuals who may have company-provided insurance, self-employed people usually need to secure their own protection. If the policyholder passes away during the policy term, this policy can help their family meet financial needs like mortgage payments, daily expenses, or children’s education, providing death benefits.

Why Self-Employed Individuals Need Term Insurance?

Self-employed individuals have unique financial challenges that make term insurance particularly important. Here are several reasons why they need it:

Financial Security for Dependents

Many self-employed individuals are the primary earners in their families. In the event of an untimely death, term insurance ensures that loved ones receive financial support, helping them maintain their lifestyle and cover essential expenses.

Debt Protection

Starting or growing a business often involves taking on debt. A term insurance policy can provide funds to cover outstanding loans, relieving family members from financial burdens during a difficult time.

No Employer Benefits

Unlike salaried employees, self-employed workers don't typically receive employer-sponsored benefits, such as life insurance. Term insurance fills this gap, providing much-needed financial protection.

Cost-Effectiveness

Term insurance is generally more affordable than whole life cover insurance, making it a sensible choice for self-employed individuals who need to manage their expenses and cash flow carefully.

Flexibility in Coverage

Term insurance policies can be tailored to specific needs, including different coverage amounts and terms, allowing self-employed individuals to choose a plan that fits their financial situation.

How Does Term Insurance for Self-Employed Work?

Term insurance for self-employed individuals works similarly to term insurance for salaried employees but with some considerations specific to the nature of self-employment. Here’s a breakdown of how it works:

Policy Term

You choose a term for the policy, typically ranging from 10 to 30 years. If you pass away during this period, the insurance company pays a death benefit to your beneficiaries.

Pay Premiums

You pay regular premiums to keep the policy active. These premiums can be monthly, quarterly, or annually. The amount is based on factors like your age, health, and the coverage amount.

Coverage Amount

The coverage amount should ideally be sufficient to cover your family’s financial needs, including debts, living expenses, and future goals like children’s education.

Proof of Income

As a self-employed individual, you might need to provide proof of income, such as tax returns, bank statements, or business financials, to determine the appropriate coverage amount.

Tax Benefits

In India, premiums paid for term insurance are eligible for tax deductions under Section 80C of the Income Tax Act, which can help reduce your taxable income.

Riders

You can add riders to your policy for additional benefits, such as critical illness coverage, accidental death benefit, or waiver of premium in case of disability.

Features and Benefits of Term Insurance for Self-Employed

Term insurance for self-employed individuals offers several important features and benefits:

Affordability

Term insurance typically has lower premiums compared to whole life insurance, making it a budget-friendly option for self-employed individuals.

Flexibility

Policies can be tailored to meet specific needs, allowing you to choose the coverage amount and term length that fits your financial situation.

Financial Security for Dependents

In the event of the policyholder's death, the beneficiary receives a lump sum payout, providing financial support for loved ones, especially important for self-employed individuals who may not have a pension or retirement plan.

Tax Benefits

Premiums paid on term insurance policies may qualify for income tax deductions under applicable tax laws, providing additional financial advantages.

No Cash Value

Unlike whole life policies, term insurance does not accumulate cash value, meaning all premiums go towards coverage, which can be beneficial for those looking for straightforward protection without the investment component.

Renewability and Convertibility Options

Many term policies offer the option to renew after the term ends or convert to permanent insurance, providing flexibility as circumstances change.

Easy Online Purchase

Many insurers offer the option to apply for term insurance online, making it accessible and convenient for busy professionals.

Additional Riders

Options for customization through riders, like critical illness or accidental death benefits, allow self-employed individuals to enhance their coverage according to their specific needs.

Understanding Term Insurance for Self-Employed with Illustration

Consider the scenario of a 25-year-old entrepreneur named Aryan. He is a self-employed individual who has established a startup and now earns an annual income of ₹10 lakhs. To safeguard the future of his loved ones, he purchased a ₹1 crore term plan for 25 years.

Aryan considered various factors such as the inflation rate, future financial goals, and the potential financial liabilities that might fall on his family in his absence. This amount would ensure that his family could maintain their lifestyle and meet future financial goals.

Rajesh also opted for a waiver of premium rider, which meant that if he became disabled and couldn't work, the premiums would be waived, and the policy would remain active.

Scenarios of Term Insurance for Self Employed Individuals

Scenario 1

Scenario 2

Death During the Policy Term

Rajesh met with a severe accident. Despite the best medical care, he couldn't survive. Priya, his wife who is a nominee, received ₹1 crore death benefit. This financial support allowed her to pay off the mortgage, cover daily expenses, and secure their children’s education.

Outliving the Policy Term

If Rajesh remains healthy and safe throughout the policy term, he would not receive any payout when the 25-year term ends, as the term plan typically does not provide maturity benefits.

Disclaimer: The above illustration is a hypothetical example created for educational purposes only and does not represent a real-life scenario. Please read your policy documents to understand the terms and conditions clearly.

Types of Term Insurance Plans in India

While the primary benefit of term insurance remains the same, based on a few features, Term Insurance can be classified into the following types:

Group Term Insurance

Self-employed individuals who are part of a trade or professional association can often get a group term insurance plan at a lower premium. This is a cost-effective option for those eligible.

Return of Premium Term Insurance Plan

Return of Premium Term Insurance Plan offers a unique feature where if the policyholder outlives the term, they receive back all the premiums paid. Although the premiums are generally higher, it provides a safety net for those who want coverage with a potential refund.

Renewable Term Insurance

This type of policy allows you to extend your coverage when the term ends without needing a medical exam. It’s useful for self-employed individuals whose financial or health situations might change over time.

Increasing Term Insurance

With this policy, the death benefit increases over time. It’s ideal for self-employed people who want to account for inflation or future financial commitments like loan EMIs.

Level Term Insurance Plan

Level Term Insurance Plan offers a fixed death benefit for the entire term of the policy. This plan is suitable for those looking for straightforward coverage without fluctuations in premium or benefit.

Decreasing Term Insurance Plan

The death benefit decreases over time, often in line with a mortgage or other loans. This can be a cost-effective option for self-employed individuals with declining financial obligations.

Convertible Term Insurance Plan

Convertible Term Insurance Plan allows policyholders the option to convert their term policy into a permanent life insurance policy without undergoing further medical underwriting. This flexibility can be valuable as financial needs change.

How to Choose the Right Term Insurance as a Self-Employed Person?

Choosing the right term insurance plan is crucial for self-employed individuals, as it provides financial security for your loved ones. Here’s a detailed guide to help you navigate the process effectively.

Identify Your Coverage Needs

Understanding your coverage needs is the first step in selecting the right term insurance:

List all your existing debts, such as personal loans, credit card debt, and mortgages. This will help you determine how much coverage you need to ensure your family can settle these debts without financial strain.
Evaluate how much income your dependents would require to maintain their current lifestyle in your absence. A common recommendation is to have coverage that is 10-15 times your annual income.
Think about life events that might require funding, such as your children's education or marriage. Factor in inflation to ensure that your coverage remains sufficient over time.

Consider Premium Affordability

Finding a balance between adequate coverage and affordable premiums is essential:

Analyze your monthly income and expenses to determine how much you can realistically afford to pay in premiums without compromising your standard of living.
Use the online term insurance calculator to request quotes. This will allow you to see various premium structures and coverage options.
Some insurers allow you to pay premiums annually, half-yearly, or monthly. Annual payments may save you money in the long run, while monthly payments help with budgeting.

Evaluate Policy Features

When comparing policies, consider the following features carefully:

Choose a term that aligns with your financial needs. Common terms are 10, 20, or 30 years. Ensure it covers the duration until your dependents no longer require financial support.
This is the amount that will be paid to your beneficiaries upon your death. Make sure it reflects your needs and obligations.
Some policies allow you to renew coverage at the end of the term without needing to undergo a medical examination. Confirm these details as your health conditions may change over time.
Research the insurer’s claim settlement ratio, which indicates the percentage of claims they successfully settle compared to the total claims made. A higher ratio signifies a more reliable company.

Add Riders for Additional Protection

Riders help customise your policy to fit your unique situation:

Accidental Death Benefit: If you pass away due to an accident, this rider provides an additional payout. This can be essential for those in high-risk professions.
Critical Illness Rider: This rider offers a lump sum payout if you are diagnosed with specific serious illnesses, such as cancer or heart disease, which can help cover medical expenses or lost income.
Waiver of Premium: If you become completely and permanently disabled, this rider waives your premiums, ensuring your policy remains active without a financial burden.

Eligibility Criteria for Buying Term Plan for Self-Employed Individuals

For self-employed individuals, the eligibility criteria for term insurance can vary slightly between insurers, but generally include the following:

Criteria	Details
Age	Typically, between 18 to 65 years
Business Continuity	Minimum 3 years of continuous business operation
Medical Examination	May be required to assess health status
Citizenship	Indian

Documents Required for Term Plan for Self-Employed Individuals

Here is the list of documents required for self-employed individuals applying for term insurance:

Identity Proof

Age Proof

Address Proof

Income Proof

Photographs

Medical Reports

Common Mistakes Self-Employed Individuals Should Avoid When Buying Term Plan

When self-employed individuals take out term insurance, there are several common mistakes they should avoid to ensure they get the best coverage for their needs:

1. Underestimating Coverage Needs

Many self-employed individuals fail to calculate their actual coverage needs. It’s essential to consider outstanding debts, future expenses, and income replacement needs.

2. Choosing Low Coverage for Cost Savings

While it can be tempting to opt for the cheapest policy, selecting a low coverage amount can leave you vulnerable. Ensure the coverage adequately protects your family's financial future.

3. Ignoring Premium Payment Frequency

Some policies offer discounts for annual payments. Evaluating different payment options may save money in the long run.

4. Not Reviewing Policies Regularly

Life changes, such as marriage, having children, or starting a new business, can impact insurance needs. Regularly reviewing your policy ensures it remains aligned with your current situation.

5. Overlooking Additional Riders

Many ignore optional riders that can enhance their policy, like critical illness or accidental death benefit riders. These can provide extra financial security.

6. Failing to Disclose Information

Providing incomplete or inaccurate information during the application process can lead to claim rejections later. Always be honest about your health, lifestyle, and business activities.

7. Neglecting to Compare Policies

Failing to shop around and compare different insurers can result in missed opportunities for better coverage or lower premiums.

8. Rushing the Decision

Impatience can lead to poor choices. Take your time to research and understand the policy terms and conditions before making a decision.

9. Setting Irrelevant Exclusions

Some may overlook potential exclusions in their policy. Understanding what is covered and what isn’t is crucial to avoid surprises when filing a claim.

10. Not Considering Financial Stability of the Insurer

It’s vital to choose a financially stable insurance company. Check ratings and customer reviews to ensure they have a good track record for claim settlements.

Tax Benefits of Term Insurance for Self-Employed Individuals

Self-employed individuals often navigate a complex financial landscape, and securing a term insurance policy can offer not just protection but also valuable tax benefits. Here are some key points to consider:

Premium Deductions

Self-employed individuals can take advantage of premium deductions for term insurance under Section 80C of the Income Tax Act. This provision allows them to claim deductions on premiums paid, thereby reducing their taxable income. The maximum limit for these deductions is ₹1.5 lakh per financial year, making it a valuable option for managing tax liabilities.

Death Benefit

Another significant benefit arises from the death benefit associated with term insurance. Under Section 10(10D) of the Income Tax Act, any death benefit received by the nominee is tax-exempt. This means that the financial support provided to dependents in the event of the policyholder's demise comes without any added tax burdens, ensuring that the funds are fully available for their needs.

Health Riders

If your term insurance policy includes health insurance riders like critical illness or accidental death benefits, the premiums paid for these riders can also be claimed under Section 80D, up to a limit of ₹25,000 (₹50,000 for senior citizens).

Business Expenses

If the term insurance policy is taken for business purposes, such as keyman insurance, the premiums can potentially be claimed as business expenses. This classification may provide additional tax benefits, allowing self-employed individuals to reduce their business income for tax purposes, thus lowering their overall tax liability.

How to File Term Insurance Claim for Self Employed or Freelancers?

The claim process for self-employed term insurance generally involves several key steps. Here’s a simplified guide to help you navigate it:

Step 1: Notify the insurer as soon as a claim situation arises through a phone call or by visiting the insurer’s office.
Step 2: Gather all required documents.
Step 3: Fill out the claim form accurately and submit it along with the gathered documents
Step 4: The insurance company will verify the details provided and may reach out for additional information if needed.
Step 5: Once the verification is complete, the insurer will either approve or deny the claim.
Step 6: The payout is typically made through a bank transfer or a cheque, depending on the company’s policies.

Documents Required for Claiming Term Insurance for Self Employed

The documents required for claiming term insurance might vary across insurers. However, typically, the following documents are required:

Claim Form

Death Certificate

Policy Document

Identity Proof of Nominee

Address Proof of the Nominee

Medical Reports (if applicable)

Bank Account Details

Additional Documents

For self-employed individuals, a term insurance plan is essential for financial security. Without employer benefits, they bear the full responsibility of protecting their loved ones. By selecting the right coverage, adding necessary riders, and staying informed on policy details, self-employed people can ensure their family’s financial future is safe. It’s a cost-effective, tax-saving policy that brings peace of mind and a secure legacy for loved ones.

FAQs about Term Insurance for Self-Employed Individuals

Can self-employed individuals get term insurance?

Yes, self-employed individuals can get term insurance. Insurance companies offer policies to freelancers, business owners, and other self-employed individuals, providing financial protection for their families.

What is the minimum income requirement for self-employed term insurance?

There is no strict minimum income requirement. Insurers typically review your bank statements and income tax returns to assess income stability and determine eligibility.

Can NRIs buy term insurance in India?

Yes, NRI, PIO and OCI applicants aged between 18 years and 65 years, and having a stable source of income are eligible to purchase term insurance for NRIs in India.

Do self-employed individuals get tax benefits?

Yes, self-employed individuals can get tax benefits. Premiums paid for term insurance can be deducted under Section 80C of the Income Tax Act, reducing taxable income.

How do I apply for term insurance as a freelancer or business owner?

To apply, choose an insurance provider, fill out an application detailing your business activities, and provide necessary documents like income proof, bank statements, and identification.

What happens if I miss a premium payment?

If you miss a premium payment, you usually have a grace period (often 30 days) to make the payment. If not paid within this period, your policy may lapse, losing coverage.

Is ITR mandatory for term insurance?

Yes, ITR (Income Tax Return) is often required as it proves your income source and stability, which helps in the approval process for term insurance.

Can a business person take self-employed term insurance?

Yes, business persons can take self-employed term insurance. It is available to anyone who is self-employed, including business owners.

Can a non-salaried person take self-employed term insurance?

Yes, non-salaried individuals, such as freelancers and business owners, can take self-employed term insurance. It provides financial security similar to salaried individuals.