In India, where the spirit of entrepreneurship thrives among its vast population, self-employed professionals carve out their unique paths with zeal and determination. Yet, amidst their journey towards building a successful career, financial security often takes a backseat. Unlike salaried individuals, who benefit from employer-provided insurance and retirement benefits, self-employed individuals face the daunting task of securing their financial future on their own. This is where the significance of a well-thought-out savings plan and term plan becomes undeniably critical.
Why term insurance appeals to self-employed
Consider the life of a self-employed content writer in India, navigating through the competitive landscape of freelancing and juggling multiple projects to build a reputation and income stream. While the flexibility and potential for growth are immense, so are the uncertainties and financial risks. Without the cushion of employer-sponsored benefits, the need for a reliable financial safety net is paramount. Let’s look at the reasons:
1. Cost-Effectiveness
Term insurance, known for its affordability, offers substantial life coverage at relatively low premiums. This is particularly beneficial for self-employed professionals in India, where budgeting and cost management are crucial for business sustainability.
Example: A 30-year-old non-smoker in India can secure a term insurance plan with a cover of ₹1 crore for a 20-year term at a premium of approximately ₹700 to ₹1,000 per month. This affordability ensures that even with fluctuating income, financial protection is not compromised.
2. Flexibility
The flexibility of term insurance policies allows self-employed professionals to choose coverage based on their changing financial situation and goals. Premiums, terms, and coverage amounts can be adjusted to match income levels and life stages, making it a versatile choice for those whose earnings may vary from month to month.
3. Financial security for dependents
For self-employed individuals, the sudden loss of income due to untimely death can leave their dependents in a precarious situation. Term insurance ensures that in such events, families are left with a significant financial cushion, allowing them to cover daily expenses, debts, and future needs without disruption.
4. Tax benefits
Under Section 80C of the Income Tax Act, premiums paid towards term insurance are eligible for tax deductions, making it an efficient tool for reducing taxable income. This feature is especially advantageous for self-employed professionals in India looking to maximise their savings and minimise tax liabilities.
5. Foundation for a comprehensive financial strategy
Term insurance serves as a critical component of a broader financial plan, providing the safety net needed to explore other investment avenues. Self-employed individuals can complement term plans with savings and investment options like mutual funds, PPF, and ELSS to build a diversified portfolio that addresses both protection and growth.
Integrating term insurance with a savings plan
A strategic combination of term insurance and a savings plan can offer a holistic approach to financial planning for self-employed professionals in India. This dual strategy not only ensures life protection but also aids in wealth accumulation and financial stability over the long term.
1. Layered financial protection: The death benefit from term insurance secures the immediate financial needs of the family, while a savings plan addresses goals like retirement, children’s education, and emergency funds.
2. Tailored to individual goals: By selecting the right mix of term insurance and savings instruments (PPF, mutual funds, fixed deposits), self-employed individuals can customise their financial strategy to suit their unique objectives and risk appetite.
3. Using savings to fund premiums: A disciplined savings plan can facilitate the payment of term insurance premiums, ensuring uninterrupted coverage and peace of mind.
Things to keep in mind while choosing term insurance
When considering term insurance as a self-employed professional in India, there are several key factors to keep in mind to ensure that you choose the best policy for your needs. Here are the crucial points:
1. Understand your coverage needs: Assess your financial obligations, debts, and dependents’ future needs to determine the adequate coverage amount.
2. Compare policies: Look at various insurers to find the best premium rates, coverage terms, and benefits.
3. Check claim settlement ratio: Opt for insurers with a high claim settlement ratio to ensure reliability and ease of claim processing.
4. Consider policy riders: Evaluate additional riders like critical illness or accidental death benefits for comprehensive coverage.
5. Review policy terms: Pay attention to policy exclusions, terms, and conditions to avoid surprises at the time of a claim.
6. Plan for the long term: Select a term that covers you until your financial obligations decrease significantly or retirement.
Conclusion
For self-employed professionals, navigating the complexities of financial planning requires both caution and strategy. Term insurance stands out as a vital component of a robust financial plan, offering affordable, flexible, and substantial coverage that safeguards against the uncertainties of life.
When combined with a disciplined savings plan, term insurance can provide a comprehensive financial safety net, ensuring peace of mind and security for both the individual and their dependents. By prioritising term insurance, self-employed professionals can secure their financial future, protect their loved ones, and continue to build their legacy with confidence.
