Surge in Term Insurance Sales to Self-Employed: 10-15X Cover Recommended with Premium Waiver

Surge in Term Insurance Sales to Self-Employed: 10-15X Cover Recommended with Premium Waiver

Sales of term insurance policies among self-employed individuals rose by 50% year-on-year in September 2024, with 70% of these purchases driven by specially tailored plans, according to data from Policybazaar. This growth is largely attributed to flexible term plans that eliminate the need for traditional income verification documents. Previously, self-employed individuals faced challenges in securing term insurance due to irregular income documentation, but insurers are now utilizing alternative data sources for eligibility assessments.

Growth of Customised Plans

The rising sales of term insurance for self-employed individuals can be credited to policies that no longer rely solely on income tax returns (ITRs) or income computations. According to Bikash Choudhary, Chief Actuarial and Governance Officer at IndiaFirst Life Insurance, "Traditionally, income verification was the main criterion for eligibility, but with specialized plans, business owners and freelancers can now secure coverage without standard income documentation."

Rhishabh Garg, Head of Term Insurance at Policybazaar, explained that these custom plans ease the process for the self-employed, whose income often fluctuates or appears lower due to business expenses. This new approach allows for more accurate assessments of their financial situation, ultimately making term insurance more accessible to them.

Alternative Data Usage

Insurers are increasingly using alternative data points, such as a buyer’s residence, car ownership, credit score, and loan repayment history, to assess eligibility. "These surrogate proofs help insurers evaluate financial stability, making the process smoother for self-employed individuals," said Garg. Data from the GST database and vehicle IDV are also being used in the evaluation process.

Determining Coverage

Experts recommend that self-employed individuals seek coverage between 10 and 15 times their annual income, a calculation often based on Human Life Value (HLV). For example, Garg suggested, "If a family earns Rs 20 lakh annually and spends Rs 10 lakh, they would need Rs 1 crore to cover a decade of expenses. Factoring in inflation, this figure could double to Rs 2 crore in the next decade, making Rs 3 crore or 15 times the annual income ideal for sufficient coverage."

Key Considerations for Self-Employed Buyers

Self-employed buyers should consider adding riders like a waiver of premium and accidental death benefit to their policy. The premium waiver ensures the policy remains active if the policyholder becomes disabled or critically ill, with the insurer paying future premiums. Garg highlighted, "This low-cost rider ensures the policy continues even if income drops due to unforeseen circumstances."

Additionally, the accidental death benefit rider can increase the payout, sometimes up to 100% more than the original coverage. When selecting a premium payment plan, buyers should choose one that is sustainable, even in challenging situations, advised Burugupalli from Bajaj Allianz Life Insurance.

Lastly, full health disclosure is critical when purchasing term insurance to avoid complications during the claims process.