Self Employed People See 10% Spike In Term Insurance Policies; Details Inside

The second quarter of the financial year 2023 has witnessed a 10% surge in the issuance of term insurance policies compared to the same period last year, according to data from insurance aggregator Policybazaar. The growth is particularly significant for self-employed individuals, who historically faced hurdles in obtaining term insurance due to stringent underwriting practices that favored salaried individuals.

Traditionally, securing term insurance for the self-employed proved challenging, as conventional underwriting practices demanded standard income proofs like Form 16 and detailed salary structures, primarily tailored for those with traditional salary-based incomes. However, recent market changes have brought about a substantial evolution, breaking down barriers and providing broader access to specialized term insurance plans explicitly designed for self-employed individuals and business owners, Policybazaar reported.

One of the key observations from the first half of 2023 is the diversification in term insurance plans. There's a significant shift towards plans that require no income proof for self-employed customers, constituting 51% of policies sold, up from 36% in the first half of 2022.

Unit Linked Insurance Plans (ULIPs) have witnessed a surge in popularity, constituting 41% of the policies sold. Noteworthy ULIPs offering a blend of protection and growth include TATA Smart Sampoorn Raksha-Param Rakshak, HDFC Smart Protect, Bajaj Invest Protect Goal, and Max Smart Flexi Protect Solution. These ULIPs offer a higher life cover of up to 200 times the annual premium, deviating from traditional ULIP objectives, as highlighted by Policybazaar.

Apart from the financial benefits, ULIPs designed for long-term goals offer tax benefits under Section 80C of the Income Tax Act and zero tax on maturity proceeds. A unique feature, the Waiver of Premium (WOP), ensures the continuity of the policy in the event of the policyholder's demise, providing a protective mechanism that extends beyond standard investments like mutual funds or traditional term insurance.

Insurers have embraced a revolution in underwriting methods, eliminating the need for income tax returns or salary proof documentation. This change has widened access to tailored term insurance plans for self-employed individuals.

Insurers now rely on digital parameters such as creditworthiness, surrogate proofs like the Insured Declared Value (IDV) of owned assets, and GST database checks to assess the financial stability of self-employed applicants.

Self-employed individuals are opting for term insurance coverage approximately 10 times their annual income, according to Policybazaar. The average sum insured varies across income brackets, with higher incomes reflecting higher coverage preferences.

Within the demographic of term insurance buyers, self-employed males dominate with an 89% representation, while females constitute a smaller share at 11%. Regional insights reveal that Maharashtra leads in the number of self-employed individuals purchasing term insurance, followed by Delhi and Uttar Pradesh in the North region. In the South region, Karnataka, Andhra Pradesh, and Tamil Nadu witness high purchases, indicating a nationwide trend toward increased demand for term insurance among the self-employed.