An increasing number of life insurers are issuing term policies to self-employed individuals, according insurance broking firm Policybazaar.com, thanks to newer methods and tools such as credit scores and vehicle ownership details for evaluating risks and financial stability.
Issuance of term insurance policies to the self-employed has risen 25 percent between July 2021 to September 2023, the report, based on the company’s internal sales database of nearly 50,000 such customers.
Newer data points to assess risks
“Recently, insurers have revised underwriting methods - the contemporary approach no longer necessitates income tax return (ITR) or salary proof documentation, thereby broadening access to specialised term insurance plans tailored for self-employed individuals and business owners,” the Policybazaar study says.
Increase in awareness amongst self-employed professionals post Covid-19 on the importance of term insurance and the rising popularity of the online mode of purchase have also played a role in expanding term coverage.
“Historically, self-employed individuals faced challenges when purchasing term plans. Insurers often insisted on extensive documentation, including income proof such as salary slips, Form 16, and ITR filing records, making the process cumbersome. Since self-employed customers tend to not have all of these documents, they faced significant challenges during the issuance of their insurance policy,” says Rhishabh Garg, Head, Term Insurance, Policybazaar.com.
Policybazaar has noted a shift towards policies where income and ITR proofs are no longer mandatory requirements for buying a term plan. The share of such plans has increased to 51 percent in January to June 2023, compared to 36 percent a year ago.
The shift in the mindsets of insurance companies is a result of greater access to non-income parameters that can help them gauge prospective customers’ financial stability. For example, they now evaluate credit score to ascertain creditworthiness, vehicle ownership data to assess purchasing power and GST databases to analyse volume of business generated by self-employed individuals.
“It is also important to note that India has a growing base of self-employed customers. Share of self-employed persons in the total employed population of the country is increasing, from 52 per cent in 2018-2019 to 57 per cent in 2022-2023, according to the latest Periodic Labour Force Survey (PLFS, 2022-23) conducted by National Sample Survey Office. Hence, life insurance companies want to acknowledge this reality and ensure that they are catering to this huge customer base,” says Garg.
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Ten times the annual income is the preferred cover amount
Most self-employed professionals seek term insurance cover of around 10 times their annual income, which is consistent with the generally-accepted rule of thumb as also choices of salaried individuals.
For instance, those with an annual income bracket of Rs 3-5 lakh typically choose an average sum insured of Rs 39 lakh, while individuals earning between Rs 10 lakh-15 lakh tend to opt for an average sum insured of Rs 98 lakh.
A large majority of self-employed individuals – 68 percent – buy term insurance policies between the age of 26-40 years. “Within the demographic of term insurance buyers, self-employed males dominate with an 89 percent representation, while females constitute a smaller share of just 11 percent,” the study notes.
Policybazaar’s state-wise analysis shows that the maximum number of self-employed professionals purchasing term insurance belonged to Maharashtra, followed by Delhi and Uttar Pradesh. Amongst southern states, Karnataka, Andhra Pradesh, and Tamil Nadu witnessed the highest number of term insurance buyers.
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