Term insurance is a critical financial tool for every individual, especially business owner. It provides a protective shield against unprecedented perils. Considering the unpredictable nature of the business income and the associated liabilities, term insurance is considered to be a necessity for entrepreneurs.
What is term insurance?
Term insurance is the purest form of life insurance, where the dependent family members of the insured-cum-policyholder receive a death benefit under any unfortunate circumstance during the plan tenure, considering the terms of the plan concerned.
Term insurance is noted for high coverage at an affordable rate, making it the most cost-effective option in the life insurance genre.
However, if the insured-cum-policyholder survives the term, there is no survival benefit in this type of policy, unless there is “Return of Premium” clause incorporated in the chosen plan.
It is best to purchase a term plan early in life, when your responsibilities are comparatively lower. This reduces the associated risks for the insurer, which eventually leads to ensuring a term plan at a comparatively lower premium rate without compromising on the coverage extent.
In the case of a level term plan, the death benefit refers to a pre-determined fixed amount chosen during plan issuance.
Benefits of a term plan for entrepreneurs
The financial risks associated with business owners are comparatively much higher than those of salaried individuals. It is comparatively much more unpredictable. Moreover, as a business entrepreneur, you do not enjoy the luxury of post-retirement benefits provided by the employer. This makes the term plan an essential tool to ensure the financial security of dependent family members in the case of emergencies.
Some of the most highlighted advantages of having a term insurance for entrepreneurs include the following:
- Asymmetrical source of income:
Business earnings are never really guaranteed and irregular, especially for new start-ups. Term plans offer a protective financial shield for your beloved dependent family members despite your absence. - Business liabilities:
A running business often requires funds for working capital or expansion, creating enhanced liabilities. A competent term plan mitigates these risks and liabilities, supporting your business during tough times. - Dependent/non-earning spouse:
Term plans act as saviours, especially if you are the sole breadwinner in the family. They help you to protect the economic dignity of your family members, especially your spouse, during challenging circumstances. - Safety net:
Term plans are supposed to be the simplest life insurance plans, allowing hassle-free and smooth nominee payouts in the case of any unfortunate event during the plan tenure, as per the terms of the chosen policy. - Economic:
Term plans are especially noted for their affordability, low premium rates, thus highlighting their popularity. - High coverage:
When compared to other traditional plans, term policies offer much higher coverage, ensuring future financial security during challenging circumstances. - Tax benefits:
Term plans allow tax benefits under Sections 10 (10d) and 80c of the IT Act. - Locked premiums:
When you buy a term plan, you can lock the premium for the plan tenure, making it all the more advantageous to begin early when the premium rates remain comparatively lower. The premium you have to pay if you purchase the plan in your 30s will be significantly lower than any term insurance in your 40s. The rising age raises the risks. - Return of premium:
Some term policies offer a special Return of Premium feature, which helps you to receive back the entire amount of premiums paid throughout the term if you survive the policy term. - Additional coverage:
Certain term plans allow coverage for critical ailments, terminal issues, and accidental deaths, allowing comprehensive coverage based on the chosen plan terms. - Payout modes:
Based on the term plans, the beneficiaries may receive the death benefit either in a lump sum or at regular intervals or a combination of both.
Factors to consider before purchasing a term plan
The important and considerable factors that must be regarded before purchasing a term insurance include:
- Tenure:
It is best to invest in a term plan early in life as a business entrepreneur, preferably while you are still healthy. This plan must ideally last till your retirement, since your dependents typically begin reducing after that. - Premium:
It is better to choose a plan with an annual premium clause, noting that it may rise on detection of any health issue. - Features:
Opt for a basic term plan that pays a lump sum death benefit. Try adding riders to the basic plan to enhance the coverage. - Disclosure:
It is best to disclose lifestyle habits like smoking, drinking, critical health details, hereditary health history, etc., as they affect the premium calculation. - Plan management:
Ensure possessing a good term cover, rather than having none.
Conclusion
A term plan is a crucial financial safety net for business entrepreneurs, where the income is irregular. However, ensure to customise your plan considering your specific needs for utmost utilisation.
