Why Is Life Insurance Important for the Self-Employed?

Does the thought of having less money leave you feeling uncomfortable?

Do you think the current cost of living breaks your income, giving you feeble chances to save money for the future? If yes, you must think of alternatives to save money for a financially secured future.

Are you self-employed? Does planning your work and delivery take plenty of time from your life? If that’s the case, planning for finances in the future would be rare for you.

But life does not always roll the way you want it to. Emergencies, accidents, and unfortunate events are bound to happen, and these can leave you in monetary stress that you would not want.

This is why the self-employed must keep financial planning on high priority. Income levels are highly variable, which makes regular savings a difficult task for the self-employed. For a safe future, buying life insurance becomes the next possible choice.

Let us explore how life insurance policies protect the self-employed?

To begin with, we will read what is a life insurance policy?

What is a Life Insurance Policy?

A life insurance policy is a contract between the policyholder and the insurance company. Under the agreement, the insurer assures the life insured to pay for the losses if any unfortunate event occurs. The assurance is given in exchange for the premium paid by the insured.

Under a life insurance policy, the insurance company pays the sum assured to the nominee if the life insured passes away during the policy period. The policy also yields benefits when the life insured survives the complete policy term at the time of maturity.

Understanding what a life insurance policy is, it is convenient to comprehend how and why the policy will be useful for the self-employed. Let us read further.

Why do Self-Employed People Need to Invest in Life Insurance?

These are the reasons for which the self-employed need to invest in life insurance:

• Income Instability:

Over the last two years, the number of self-employed individuals has increased, especially after the pandemic. The figures are impressive as they gave a good push to the country’s economy. But for an individual, the income levels fluctuate without giving most people financial security in life. At times, their present is shaky, which leads to a haunting future for them. With a life insurance policy, the self-employed can have financial security, and the savings can help them attain their goals.

• Lack of Employer Benefit:

Those in regular jobs are often covered under the life insurance policies that their employer offers. It brings a sense of security to the employee, pushing them to be more productive and loyal to their employer. The premium is also divided at times as the employee has to pay a portion of their premium, and the employer gives the other half. But a self-employed, on the other hand, is the one who sails on the boat alone. They have to take care of the future requirements themselves, planning it in the manner that suffices.

• Security:

Self-employed individuals remain more focused on the development of the business. They have umpteen problems for which they are continuously looking for solutions. Amidst all this, they hardly manage to think of their family’s future security. This is where buying a life insurance policy can help. The policy provides enough monetary security, but it also pays the nominee in the family lump sum amount after the death of the life insured.

The claim amount payable under the life insurance policies helps the dependents in the family to manage the sudden loss of life as well as liabilities, if any. For example, Anishka, a freelance content writer, had fluctuating income levels, and she made only Rs.20,000 per month. Anishka had one child to take care of, for whose security she planned to buy a term plan as it was the most affordable cover. A term plan of Rs.1 crore only costs her Rs. 542/month. The plan will pay her daughter (nominee) if Anishka passes away during the policy term and if all the premiums are paid.

• Save for Long-Term or Short-Term Goals:

With a life insurance policy, you can save for your long-term or short-term goals. Otherwise, it could be a rare case when you plan to save money every month. Being self-employed is a blessing, yet the income levels fluctuate. It gives you less opportunity to save for your goals like building a house, going for a vacation, or fulfilling a dream like buying a car.

You can conveniently save for your future goals with a savings life insurance policy. At the policy’s maturity, the life insured gets a lump-sum payment along with the bonuses. So, you get more than what you just paid as a premium. It becomes difficult to save without insurance as a single incidence of emergency can wipe away your savings.

• Tax Benefit

It becomes hard to digest that whatever you earn is taken away as per the applicable income tax laws. But the best part of the story is you can save some of it after paying the life insurance premium. You can save up to Rs.1.5 lakhs every year of income tax under the law’s Sections 80C, 80D, and 10(10D). Now you must be thinking that to save on tax, you have to buy a life insurance policy which is another expense. To this thought, the fact is that with a life insurance policy, you get an opportunity to build security for the dependents in the family. The insurance policy pays them the lump sum either on death or at the time of maturity.

Which Life Insurance is Best for the Self-Employed?

Term life insurance for the self-employed could be the best buy. Here are the supporting reasons for this:

1. Affordable: Term life insurance policy is the only cost-effective high life cover insurance policy. It is because the policy does not have any investment component due to which the premium is less.
2. Pays in lump sum: The term life insurance policy pays in a lump sum the amount to the nominee after the demise of the life insured. The survivors can use the amount to pay off the loan liabilities or manage any other responsibilities.
3. Offers you rider covers also: The self-employed may look for better or more comprehensive cover at an affordable cost, and they would want more for the minimum amount they would like to spend in simple terms. The term insurance plan comes with the option to buy rider covers at a nominal premium.
4. Terminal Illness Benefit: Self-employed may not always have sufficient availability of funds all the time. The fluctuating income levels can leave you puzzled if medical emergencies occur. Suppose you are diagnosed with a terminal illness; you will hardly have time to earn more and save more for your family. But if you have a term life insurance policy, 50% of the applicable sum assured under the policy will be paid immediately. Also, all future premiums will be waived. The feature is available in the term plan only. That is, the policy is a must-buy.
5. Life insurance with single premium option: The best part with the term insurance policy is that you can pay just a single premium to get a high life cover. You can get a life cover of Rs.1 crore by paying a single premium of about Rs.1.5 lakhs only.

Conclusion

Life insurance for the self-employed is to protect the dependent in the family at the time when they need maximum support. It could be a situation of emergency when you are not there to take care of your family, and you would not want them to ask for help from a third person. Be wise and buy a life insurance policy as early as possible. Note that you can take a chance with your self-employment when young, and it is the same time when you can save money by buying an insurance policy early in life. For more information on life insurance, read here.