Long-Term Insurance for the Self-Employed: Get 10-15X Coverage, Add Premium Waiver | personal finance

Challenges for self-employed buyers

Self-employed workers often face barriers to purchasing temporary insurance due to financial documents that do not fully reflect their income. This complicates underwriting.

Madhu Burugupalli, senior executive vice-president and product head, Bajaj Allianz Life Insurance, gives the example of a buyer who earns Rs 3 lakh a year and wants coverage worth Rs 5 crore. “Insurers will be cautious because there is no justification for such high coverage relative to income,” he says.

Greater reliance on alternative data

Insurers increasingly use alternative data to assess eligibility. According to Burugupalli, the input belongs to the buyer

Residence, car ownership (financed or owned), company revenue, credit score and loan repayment history are now considered instead of the Income Tax Declaration (ITR) and income calculation.

“Surrogate evidence such as the Insured Declared Value (IDV) of a vehicle and data from the Goods and Services Tax (GST) database helps insurers assess financial stability,” says Garg.

Determine the insured value

The insured capital can be calculated using the Human Life Value (VHL) obtained by multiplying the annual income by the remaining years of work.

A general rule of thumb suggests coverage should be 10 to 15 times annual income. Garg explains that if a family's annual income is Rs 20 lakh and monthly expenses are Rs 80,000 (around Rs 10 lakh annually), then it will need at least Rs 1 crore to cover expenses for a decade. “Due to doubling of inflation every decade, this number will rise to Rs 2 crore in the next decade. Therefore, Rs 3 million or 15 times income is ideal in terms of coverage, while the minimum needs to be 10 times,” says Garg.

Burugupalli added that the family's monthly living expenses should include school fees, home loans and other necessities to determine insurance coverage.

Points to remember

Self-employed buyers should add benefits such as premium waivers and accidental death benefits to their policies. The first ensures that future premiums are paid by the insurer in the event of accidental disability or critical illness. “This feature allows the policy to continue even if income drops due to unforeseen circumstances. It is a low-cost pilot,” said Garg.

According to Garg, accidental death benefits pay more – up to 100% more – than coverage.

Choose a premium payment plan that you are comfortable with. “Choose a plan that you can comfortably follow, even if unexpected challenges arise,” says Burugupalli. Finally, Burugupalli emphasizes the importance of full health disclosures when purchasing term insurance to ensure smooth claims processing.