Freelancer's Guide: Getting Term Insurance Cover Without the Hassle

The freelancing/gig economy is here to stay. India has a whopping 15 million freelancers as per estimates, spanning multiple fields from IT and web development to data entry and more. With income uncertainty and irregular income flow being part and parcel of the self-employed life, ensuring adequate financial security for your family is essential. However, as a self-employed professional, you may have to face hurdles while buying term insurance.

What are the Issues Faced by Self-Employed/Freelance Professionals?

Here is a snapshot of the problems that self-employed/freelance professionals encounter while trying to obtain term insurance.

Hurdle 1		Hurdle 2		Hurdle 3		Hurdle 4		Hurdle 5
Lack of standardized proof of income		Absence of consistent and standardized documentation unlike salaried term insurance applicants		Stringent and inflexible practices of underwriting that mostly favor salaried applicants		Due to income proof issues, they may struggle to get adequate coverage		Self-employed personnel are often issued insurance plans based on their ITRs. However, this is also absent in some cases, leading to higher rejection rates from insurers

What ultimately happens is that all these hassles eventually lead to self-employed professionals or freelancers abandoning their mission to secure their families with term insurance. At the same time, the income-based eligibility for self-employed applicants is also way higher than salaried personnel. For example, the minimum annual income that insurers may need for salaried professionals could be approximately Rs. 3 lakh, while this may zoom up to Rs. 5 lakh for self-employed individuals.

However, all is not lost yet. There is abundant light at the end of the tunnel today. Does this statement sound confusing to you? Read on below for more.

Life Insurance Norms for Self Employed Customers are Getting Better!

Insurance companies are responding to the growing number of self-employed professionals by addressing specific needs of self-employed individuals. Here are some aspects that bring hope for all those in this category (including you if applicable).

• Many insurers are aiming to drive future growth from the self-employed category. They are now implementing methods of authentication which are tailored for individuals in this category.
• Insurers are also attempting to leverage alternative sources of data for estimating income and other details even when the ITR/salary slip is absent. This includes consumption and investment data along with GST databases, vehicle ownership, and more.
• Insurance companies are also taking the consent of self-employed customers who use credit cards and then checking their credit history likewise, thereby gaining valuable information about the financial statuses of customers. This is being done by estimating the spends via credit cards in order to get an idea of overall earnings.
• In case clients provide consent via OTPs, insurance companies (account aggregators are now enabled) may also view debit and credits from bank accounts, while using algorithms thereafter for income estimation. Account aggregator has become a major driving force behind the growth in insurance plans for the self-employed segment.
• Insurers are also looking closely at data linked to ownership of a home, amount of housing loan, mutual fund investments, EMIs paid on loan, etc. to estimate income.

Of course, more people are now obtaining term insurance in this category. Policybazaar.com, for instance, has reported an increase of 10% in term insurance policies for those who are self-employed between Q2 FY22 and Q2 FY23. Insurance companies have been steadily moving towards plans that do not come with income proof requirements. As a result, 51% of policies sold in H1 2023 were in this category, as compared to 36% in H1 2022 based on this report.

What Freelancers Should Remember

While change is in the air (and for good), you should always remember a few cardinal rules.

• Choose adequate coverage that can take care of future family household expenses, children’s higher education and weddings, investment goals like buying a house, and so on.
• Do not forget to account for your liabilities in the calculation, since your family will otherwise struggle to repay them in case you are not around.
• Select a suitable tenure, since you may keep working beyond 60 as a self-employed/freelance professional. Estimate and fix an age till which you are most likely to keep working and earning. If someone in your household will depend on your income, then term insurance is a must.
• You should ideally have term insurance coverage for 30 years from the birth of your youngest child. By then, your child will ideally be in a position to take care of her/his needs and will not be dependent on your income.
• Have a nominee and make sure that he/she is aware of the fact.
• File your ITR since it will help increase your likelihood of getting proper term insurance coverage.
• Always disclose any medical/health condition along with lifestyle habits. This will help avoid issues during future claim filing and settlements.
• Compare premiums across multiple insurers and aim to get the best possible coverage at the lowest possible premium.
• Never let your policy expire or lapse; buy term insurance with at least a few months’ worth of premium payments in your account.

Conclusion

As can be seen, term insurance is a boon for those who are self-employed. It will relieve your family of the financial burden of your sudden and unfortunate demise, should such a calamity ever happen. Keep the above tips in mind while purchasing your policy.

 

Chirag Iyer - BFSI Enthusiast

Chirag is a writer and an avid reader who loves to drink coffee! His other interests include boxing, karate, and singing.