A few days ago, a client approached one of our advisors and asked, “I have a small business where I deal with garments and jewellery. I wanted to purchase a term insurance plan, but I am not sure if I am eligible for one. Can you please help me out?”
Of course, our advisor helped him out. However, this discussion gave way to an internal analysis of the myths and suppositions that run in the life insurance industry. For example - our client thought that since he wasn’t a salaried individual, he wouldn’t get a term insurance plan!
However, he couldn’t be more wrong because while it’s true that term insurance providers do have the income slab of a potential policyholder as one of their eligibility criteria, they are not affected by whether the person is salaried or self-employed! In fact, more often than not, business owners/entrepreneurs end up taking a term insurance policy to safeguard the financial future of both their loved ones and their business interests. So, all the top term insurance plans are available for entrepreneurs.
On the other hand, since the source of income is a bit different from the standard channel (read: salaried), leaving scope for fluctuations in the income amount, term insurance providers may have a few restrictions that you would need to adhere to.
So, if you are seeking the best term insurance plans for business owners/entrepreneurs in India, here’s everything you need to know - the pros and cons, best term plans for business owners/entrepreneurs, the involved eligibility criteria, required documents, and more!
Heads Up: It takes an average person up to 5 hours to read & analyze a policy, and 10 hours or more to compare different plans and make a decision.
This is why we propose a better alternative - taking a 30-minute FREE consultation with Ditto’s certified advisors. We have a spam-free guarantee, and we’ll never push you to buy a plan. Don’t delay this - we have limited slots every day, so book a quick call here before they run out.
Best term insurance plans for business owners/entrepreneurs in India
Should business owners/entrepreneurs in India purchase a term insurance policy?
Term insurance plans are crafted to ensure that your family’s future life-stage goals are met without any financial hiccups in the event of your unfortunate absence. The sum assured disbursed (and pre-decided by the policyholder and the insured) is supposed to act as an income replacement. Considering this, as a business owner/entrepreneur, when you have a dual financial responsibility towards your family and your business, you need an affordable protection tool to safeguard the future. This is quite achievable via term insurance policies.
However, much like any financial product, term insurance plans too have their set of caveats. Let’s get a customised insight into the pros and cons of term insurance plans for business owners/entrepreneurs! You can weigh out your options and then make an informed decision!
What are the advantages of term insurance plans for business owners/entrepreneurs?
- Managing Loans and Liabilities: Growing a business often requires additional funds, leading to loans and liabilities. As an entrepreneur, you might not worry about these obligations, believing they'll eventually yield profits. However, in your absence, these liabilities can burden your family and disrupt business operations. Term insurance can mitigate this risk, safeguarding your family's finances and ensuring business continuity.
- Enhanced Protection in Life-Altering Events: Term insurance offers more than just death coverage. It provides vital protection during life-altering situations like accidents, injuries, or critical illnesses. With additional riders, term insurance offers extra financial support, helping you and your loved ones navigate challenging times while you recover.
- Unique Income Sources: As a business owner, your income might not follow the traditional pattern. While you invest in and grow your business, your cash flow might be limited, putting short-term savings and investments on hold for long-term success. Planning for rainy days is essential, but it's equally important to protect your family's financial future with a term insurance plan.
- Support for Financially Dependent Spouses: In households where one spouse is the primary earner, term insurance is crucial. Protecting your spouse's financial well-being in your absence ensures their continued stability, covering expenses like children's education and long-term savings.
- Leverage the Married Women Property (MWP) Act, 1874: This act ensures financial protection for your spouse and children, safeguarding the sum assured from being used to repay loans incurred solely by the husband and guaranteeing it reaches the wife or children.
- Simple and Hassle-Free Safety Net: Term insurance stands out as a straightforward option. It eliminates complexities related to returns and coverage details, providing seamless coverage and a hassle-free payout to the nominee upon the insured's demise.
- Cost-Effective Solution: Term insurance offers affordable premiums, allowing entrepreneurs to seek higher returns through other investments. The focus is on providing life cover or death benefits without unnecessary frills.
- Mitigating Risks: Having a term plan with a well-prepared strategy is crucial for handling unexpected situations. This "resilience framework" or contingency plan helps anticipate and manage risks, implement risk reduction strategies, and recover quickly from disruptions. Benefits include reducing the likelihood of negative events, minimizing damage in unforeseen incidents, and improving overall efficiency by enabling a quicker return to normal operations.
- Continuity for Your Business and Employees: Your business's success relies on the loyalty and satisfaction of your employees. In your absence, their emotional loss is significant. Ensuring financial security through a term insurance plan allows your employees to receive their regular salaries, easing their concerns and securing their lives. This fosters a supportive environment and retains skilled team members who can sustain business operations during your absence.
What are the disadvantages of term insurance plans for business owners/entrepreneurs?
- No Equity or Loan Collateral: Term insurance doesn’t build equity or provide collateral for loans. Business owners can’t use their term insurance policy to secure loans for business expansion or other investments.
- No Cash Value Accumulation: Term insurance, unlike some other life insurance policies, doesn’t build cash value over time. It’s purely a protection plan with no investment or savings component.
- No Return on Investment: If you outlive the policy term, you don’t get any premiums back. This can be a disadvantage for those looking for both protection and potential financial growth.
What are the best term insurance plans for business owners/entrepreneurs in India?
- Max Life Smart Total Elite Protection: Similar to Max Life’s Smart Secure Plus policy, this plan is comprehensive and has a few caveats. It is a slightly modified version of the Smart Secure plan, featuring an additional Smart Exit Option. The plan also offers a variety of riders, including:
- Waiver of Premium (due to accident or critical illness)
- Total and Permanent Disability rider
- Critical Illness benefits (64 and 22 ailments)
- Accidental Death Benefit
- Zero Cost Option, and more.
Drawback: The plan requires policyholders to have a minimum annual income of ₹10 lakhs and provides coverage of a minimum of ₹2 crores.
2. HDFC Life Click2Protect Super: HDFC Life offers several variants of its Click2Protect product, most of which are slightly more expensive than other plans on the market. Click2Protect Super is the costliest of these variants. However, its features are appealing enough to justify the higher premiums. The policy includes some of the best riders in the industry:
- Waiver of Premium on Total and Permanent Disability
- Renewability Option at Maturity
- Waiver of Premium on Critical Illness
- Spouse Cover Option
- Return of Premium
- Life Stage Option
The policy includes a smart exit perk with an in-built terminal illness benefit and comes in three variants:
- Life: This option pays out the sum assured as a lump sum upon the policyholder’s death. It also includes a terminal illness benefit, providing the sum assured if the policyholder is diagnosed with a terminal illness and has fewer than six months to live.
- Life Plus: In addition to the death and terminal illness benefits, this variant offers an accidental death benefit. If the policyholder dies in an accident, the nominee receives an extra amount on top of the base sum assured.
- Life Goal: The sum assured payable upon death changes with each policy year based on the Level Cover Period chosen at the plan's start.
Drawback: The plan is a bit expensive.
3. Bajaj Life eTouch: This term insurance plan stands out as one of the most affordable options on the market. Its popularity stems from several attractive features, including:
- Three variants: Life Shield, Life Shield Plus, and Life Shield Return of Premium.
- A selection of riders depends on the chosen variant, such as death benefits, terminal illness coverage, waiver of premium, accidental death benefit rider, and return of premiums.
Drawback: The plan lacks a Critical Illness Rider.
4. ICICI Prudential iProtect Smart: ICICI Prudential offers a single, comprehensive term insurance plan called iProtectSmart. This policy is not only affordable but also includes a range of built-in features:
- Life Stage Benefit Option
- Waiver of Premium in case of total permanent disability
- Zero Cost Term Plan Option
The iProtectSmart policy also provides the following riders:
- Accidental Death Benefit
- Critical Illness Benefit
Drawback: Recently, the insurer has experienced a decline in overall operational efficiency.
5. Tata AIA Maha Raksha Supreme: Among the most affordable term insurance plans available, the Maha Raksha Supreme policy provides an extensive range of features:
- Critical Illness Benefit covering 40 ailments
- Accidental Death Benefit
- Waiver of Premiums in cases of accidental total and permanent disability or diagnosis of a critical illness
- Critical Illness Rider
- Total Permanent Disability Rider
Drawback: The plan is available only to individuals with an annual income above ₹15 lakhs and offers coverage of ₹2 crores or more.What are the eligibility criteria for term insurance plans for business owners/entrepreneurs in India?
Term insurance providers have their own set of eligibility criteria, which involve -
- Age of the policyholder
- Income slab
- Educational Qualification
- Occupation
- Occupational risks
- Lifestyle
- Habits
- Pre-existing medical conditions
Now, while a majority of the factors remain the same for term insurance providers, with respect to the term insurance availability based on educational qualification and income slab, if you are a business owner, things might vary a bit -
(This explanation aims to clarify how eligibility criteria work. For illustration, we’ve selected the three most popular term insurance providers: ICICI Prudential, Max Life, and HDFC Life.)
What are the documents required to purchase a term insurance policy for business owners/entrepreneurs in India?
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Conclusion
In conclusion, term insurance is essential for business owners and entrepreneurs, offering vital protection for both your business and your family's financial security. Choosing the right term insurance plan allows you to manage risks, ensure business continuity, and provide a safety net for your loved ones.
