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If everything goes right and the business prospers, there’s nothing to worry about, and the profits from the business can be used to fulfil all financial responsibilities.
However, if the key individual managing the business passes away, things can crumble not just for the family but also for other stakeholders. That's where a term insurance policy comes in.
Key Benefits of Term Insurance for Self-Employed Individuals
Unlike salaried individuals, self-employed individuals don’t have a specific age to retire. However, life is unpredictable, and getting term insurance keeps your family protected across different fronts.
- Income Replacement: A term plan for self-employed individuals can help compensate for any loss of income due to the demise of the life insured, ensuring basic financial security for the dependants.
- Debt Protection: Any outstanding debts at the time of the demise of the life insured can be paid off using the death benefits of the term plan, thereby reducing financial strain on the family.
- Business Continuity: For sole proprietorship businesses or partnerships, the life cover payout from a term plan offers the much-needed financial support to ensure continuity after the demise of the sole proprietor or partner.
- Tax Benefits: Self-employed individuals opting for the old tax regime can get an annual tax deduction of up to ₹1.5 lakh by paying term plan premiums u/s Section 123, Schedule XV of Income Tax Act, 2025.
- Coverage against illness and disability: A term plan for self-employed in India allows you to purchase optional add-ons that cover certain pre-identified critical illnesses or disabilities. Ageas Federal Life Insurance Accident Care Rider and Ageas Federal Life Insurance Critical Shield Rider can boost your base Ageas Federal Life Term Plans. Reach out to an Ageas Federal Advisor for further details.
- Flexible Payout of Death Benefits: Self-employed individuals buying a term plan can configure the death benefit as per their needs. Available options include regular income for a specific period, one-time lump sum payout or a combination of lump sum and regular income for a specific number of years.
- Option to Cover Spouse in Same Plan: Self-employed individuals do not need to purchase a separate plan to extend the benefits of life cover to their spouse. The option to add life cover for a spouse in the same plan allows the policyholder to reduce the complexity of purchasing separate policies. (Death benefits up to the specified sum assured limit are paid out in the event of the demise of either of the life assured.)
- Return of Premium Benefit: Term insurance for self-employed individuals usually does not offer any maturity benefit. However, if the policyholder opts for life cover with return of premium (ROP) benefit, the insurer refunds premiums if the life assured survives until the end of the policy term (100% of all premiums paid are refunded subject to applicable terms and conditions).
- In-Built Terminal Illness Benefit: Some term insurance plans are offered with in-built terminal illness cover at no extra cost. Under this benefit, a lump sum payout equal to or higher among 100% of the sum assured, or ₹2 crore, is paid if the life assured is diagnosed with a terminal illness during the policy term.
Why Should a Self-Employed Person Buy Term Insurance Early in Life?
When a self-employed professional starts out, they have less professional experience and therefore low income potential. So, it's only normal for one to delay buying a term plan as they wait to reach a high income bracket. But, in reality, purchasing a term plan early in life is a wise call for more than one reason.
- Greater Affordability: Term plans bought at an early age come with lower premiums.
- Lower Rejection Risk: At a young age, you have fewer health complications, which increases the chance of policy approval.
- Greater Financial Security: Due to the low premiums at an early age, the life insured can potentially opt for higher cover, and therefore, enhanced financial security at a reasonable cost.
- Higher Tax Savings: The tax benefits are applicable on every premium payment. So, for anyone buying a term plan early in life enjoys a longer premium payment term, leading to higher tax savings.
How Do Term Insurance Premiums Change with Age?
Buying term insurance later in life leads to significantly higher premiums, which, in turn, raises the overall cost of purchasing. Here’s an example of how the the premium payable for a ₹1 crore regular pay term plan bought by a healthy, non-smoker male changes with age of entry.
| Age of Entry | Premium Payment Term | Policy Term | Annual Premium Payable (₹) | Total Premium Paid Over Policy Term (₹) |
|---|---|---|---|---|
| 35 years | 35 years | 35 years | 16,822 | 5.89 lakh |
| 40 years | 30 years | 30 years | 21,993 | 6.60 lakh |
| 45 years | 25 years | 25 years | 30,772 | 7.69 lakh |
| 50 years | 20 years | 20 years | 41,429 | 8.29 lakh |
Note: The above calculations are illustrative and based on the purchase of a regular pay, Ageas Federal Life Insurance Super Protect Plan with a sum assured of ₹1 crore by a healthy, non-smoking male. Rates are subjected to periodic revision.
Riders Available with Term Plan for Self Employed
As optional add-ons to a policy, riders enhance the protection offered to the life insured via the base plan. Here’s a look at the available riders for Ageas Federal Term insurance for self-employed.
Critical Shield Rider
Depending on the variant chosen, the critical shield rider covers up to 50 critical illnesses. The policyholder can customise the rider sum assured starting from ₹50,000 with no maximum limit, subject to board-approved underwriting. The payout is made as a lump sum if the life assured is diagnosed with any of the covered critical illnesses. However, any payout using this rider over and above the death benefit under the base term plan attracts an extra premium.
Accident Care Rider
The primary goal of the accident care rider is to provide additional protection to the life assured in the event of accidental death or disability. Under this rider, the life insured can get up to 200% of the rider's sum assured on death due to a rail or air accident. This rider can either be added at inception or during policy renewal if the eligible term plan is already in force. Ageas Federal Life Insurance Accident Care Rider promises flexibility in premium payments as you can pick from either one-time or annual or bi-annual, and monthly premium payments.
Waiver of Premium Rider
The waiver of premium rider provides uninterrupted benefits and financial protection to beneficiaries of Ageas Life Insurance term plans for specific covered events. When you opt for the waiver of premium rider, all future premiums of the term plan are waived if the life assured is diagnosed with any of the 50 covered critical illnesses (while the rider is still in effect).
Additionally, a waiver of premium rider ensures the policy is not terminated and its key benefits, like life cover, continue uninterrupted without the affected policyholder making any further premium payments. One can choose when the waiver comes into effect, i.e., upon the diagnosis of a listed critical illness or upon the death of the life assured.
How to Choose the Best Term Life Insurance Plan for Self-Employed
As a self-employed individual, you will need to know a few basics before buying a term plan, as the protection you need might be different from others.
- Assess your protection need: Self-employed individuals should consider their unique protection needs based on their current liabilities, like multiple personal debts or outstanding business loans.
- Determine your adequate coverage amount: The cover a self-employed individual needs is driven by several factors, like your current annual income, the policy premium and the number of dependents. As a general rule, life cover for a term plan should be between 15 to 20 times of the annual income. If you have multiple dependents, a higher amount is preferable, but also consider the premium you have to pay.
- Compare benefits of different plans: While most term insurance plans offer similar benefits under the base plan, some variants have unique in-built benefits at no additional cost. These in-built features provide enhanced protection during a crisis, such as when diagnosed with a terminal illness, and include the benefit of premium refunds if you survive the policy term.
- Check the claim settlement ratio (CSR) of the insurer: An insurer with a high CSR is always preferable as it makes it easier for the nominee to receive the life cover benefit if the life assured passes away during the policy term.
Ageas Federal has an impressive claim settlement ratio of 99.82% in FY 25-26, which is among the highest in the industry, showcasing the insurer’s commitment to settling claims effectively. - Add only those riders you need: While riders are always beneficial, don't add multiple riders blindly. Compare the potential benefit of available riders with the additional cost before making the final purchase decision.
| ID and Address Proof | Age Proof | Income Proof | Medical Report |
|---|---|---|---|
(Only one of the above documents is needed) |
| Proof of business registration, such as a GST Registration Certificate, Partnership Deed, etc., along with the following:
| Carried out for free by the insurer and required based on age/sum assured as per the insurer's underwriting policies |
FAQs About Term Plan for Self Employed
Can self-employed individuals purchase a term insurance policy?
Yes, self-employed individuals such as business owners and professionals can purchase term insurance plans in India. However, they need to fulfil the various term plan eligibility criteria as specified by the life insurance company to purchase a suitable term insurance policy.
Can term insurance premium payment tax benefits be claimed when filing ITR-4?
Yes, self-employed taxpayers filing their returns using ITR-4 form have the option to claim a tax deduction on premiums for term plans. However, the tax deduction benefit is available only if the policyholder has opted for filing taxes under the old tax regime. The maximum limit of this benefit under Section 123 of the Income Tax Act, 2025, is ₹1.5 lakh annually.
Can a self-employed NRI purchase a term plan in India?
Yes, self-employed non-Resident Indians can purchase a term plan in India. However, they need to fulfil all eligibility criteria for a term plan as specified by the insurer and are subject to the applicable board-approved underwriting policy.
What is the minimum annual income to buy term insurance for self-employed?
The minimum annual income required for a self-employed individual to purchase a term plan varies between insurers and plans. Do check the eligibility criteria with the prospective insurer or get in touch with an Ageas Insurance Advisor for the complete information.
Can a small business owner purchase a term plan for self-employed?
Yes, self-employed individuals such as small business owners can purchase a term insurance plan for self-employed. It is in fact advisable, as a term plan provides a much-needed financial safety net for their loved ones, especially if there are outstanding business loans or other liabilities. Typically, you may need documents like proof of business registration and audited financial statements to purchase the self-employed term plan.
What is the maximum policy tenure for a term plan for self-employed?
In India, self-employed individuals can purchase term insurance plans after they are 18 years old, and the maximum age of maturity for the policy is fixed at 85 years. Considering these entry and maturity limits, the maximum policy tenure of a term plan for self-employed can be up to 67 years.
Can self-employed individuals with pre-existing conditions purchase a term plan?
Yes, self-employed individuals with pre-existing conditions may be able to purchase a term plan in India. However, these policies would feature higher premiums than comparable policies sold to individuals without pre-existing conditions. However, the final decision to allow purchase will be governed by the internal policies of the insurer.
What are some common term plan exclusions that self-employed individuals should be mindful of?
Exclusions are situations where life cover or rider benefits are not available under the term plan. Some common exclusions under a term plan for self-employed include death or disability resulting from:
- Self-harm/self-inflicted injury
- War, invasion, terrorism, etc.
- Hazardous/adventure sports
- Drug addiction, etc.
Check the policy prospectus for a complete list of exclusions under your policy.
What happens if I miss my premium payment for the term plan?
If you miss the due date of your term plan premium, you will initially be granted a grace period. During the grace period, the policy benefits continue uninterrupted. However, if you do not make the due premium payment along with the applicable late fees during the grace period, the policy becomes dormant and the term plan benefits are no longer available to the life assured/beneficiaries.
Can self-employed individuals surrender their term plan before the end of the policy term?
Yes, if a self-employed individual has opted for a term plan with a return of premium benefit, surrendering the term plan before the end of the policy term is allowed. In such cases, the insurer may refund up to 100% of all premiums paid to date for the term plan, minus any charges or fees specified in the policy document.
