The covid-19 pandemic caused a global crisis in 2020, bringing the world to a virtual standstill. It has affected all parts of society the world over, rich or poor, salaried or self-employed, no one was left untouched. The importance of insurance coverage has never been more obvious. Yet India has an abysmal life insurance penetration rate of just 2.74%. Financial experts extoll the virtues of term insurance. Still, only one in five Indians has term insurance coverage despite it being the most affordable. So, what is term insurance and why is it so important for entrepreneurs?
What is Term Insurance?
Term insurance is a form of life insurance providing coverage for a specified period. However, unlike regular life insurance, there is no cash benefit if the insured individual survives the policy period. Term insurance provides the purest form of protection for the policyholder’s family members. The beneficiaries will receive the guaranteed death benefit if the policyholder passes away during the coverage period. Term insurance is often less expensive than other life insurance types.
Why is Term Insurance Important for Entrepreneurs?
Term Insurance Coverage in the Time of Coronavirus
Economic insecurity has been high during the covid-19 pandemic. The Centre for Monitoring the Indian Economy (CMIE) estimated that more than 45 million entrepreneurs lost employment or their enterprise during different phases of the lockdown. About 78% of small and medium enterprises and start-ups and were compelled to reduce their workforce due to the pandemic. There can be no doubt that the pandemic has exponentially increased the financial burden and insecurity on entrepreneurs. And while dealing with the inevitable stress, taking out insurance may be the last thing on an entrepreneur’s mind.
Death is not an easy topic for most. Hence, it is no wonder that most people do not think of things such as insurance, death benefits, and so on. More so when it seems that they have their full lives ahead of them. However, an alarming statistic provided by the Health Ministry of India states that at least 43% of covid-19 casualties have fallen in the age group of 30-59 years. The pandemic has eaten into India's most economically productive age group. This group comprises both salaried as well as self-employed individuals.
Never before has it been more important to plan for the future. It is the responsibility of every entrepreneur to ensure that their dependents are financially protected especially in these trying and uncertain times. There is an urgent need for every Indian to realise the gravity of the situation and how important it is to secure the future of their loved ones against financial strains and hardship.
Liabilities that are Borne by Entrepreneurs
Every working individual has financial liabilities of some kind or the other. Starting from the household, one may have to pay for children’s education, daily living expenses, medical expenses, and so on. On top of that, entrepreneurs often take high-value long-term loans to fund their business ventures. In the unfortunate event of the entrepreneur’s demise, their family members are left to bear the ensuing financial burden. A term insurance plan can go a long way in protecting your family from such a financial crisis.
Unpredictable Source of Income and Affordable Insurance
Most entrepreneurs will state their desire for self-employment comes out of a need to live life on their own terms. Their sense of passion brings with it a desire to call the shots and to have something they call their own. It comes at the cost of a regular fixed monthly income. An irregular income, especially at the initial stages of a business venture is part and parcel of an entrepreneur's life. They cannot rely on an employer to provide a fixed salary and bonuses. This income irregularity makes it harder for entrepreneurs to plan for the future. And this is where term insurance is of great help. Term insurance is the most affordable type of life insurance available. One does not have to put aside large sums of money towards insurance premiums to ensure the financial protection of their dependents. In fact, as a 30-year-old, one can buy term insurance coverage for 70 years for as low as INR 1000 per month for a sum assured of INR 1 crore. That monthly premium goes up to only INR 2000 as a 45-year-old.
Stress-free Insurance Coverage
For other insurance types, one must carefully go through various policy details regarding the return rate, coverage details, and so on. A term insurance plan, on the other hand, is straight-forward. It simply offers coverage for the stipulated period and a death benefit to the beneficiary in case of the insured person’s demise during the coverage period. There is no need to pore over extraneous details because there are none.
Flexible Premium Payment and Pay-out
One can choose the limited premium payment option where they can pay for the entire coverage period within a few years only. Also, the death benefit can be paid in a staggered manner or as a lump sum payment.
Zero Waiting Period
Moreover, term insurance plans do not have a waiting period. Coverage is provided on the same day that the insurance policy is issued.
Riders
One can combine their term insurance policy with riders that suit the individual’s specific requirements. For example, a critical illness rider or an accidental death benefit rider.
Tax Benefits
Term insurance is made even more attractive by the tax benefits one can avail on them:
- Under Section 80C –
Term life insurance premiums up to INR 1.5 lakh are tax exempt.
- Under Section 10(10)D -
The death benefit of the term insurance plan is also tax-exempt.
- Under Section 80D–
Health benefit related riders provide a deduction of up to INR 25000 on premium payments.
Conclusion
Life can be uncertain and the world of business, even more so. Reduce the stress and unpredictability of the future with a term insurance plan. With it, one can rest easy knowing that their loved ones will be financially supported no matter what.
