Why Term Insurance Is Important for Business Owners?

Wealth creation, employment generation and innovation are all possible in entrepreneurship. If you aspire to make a difference in the world through an innovative idea or business concept, entrepreneurship is the way forward. Uncertainties in revenues, operational challenges and external factors make the entrepreneurial journey suitable only for individuals with nerves of steel. If you think you are carved out to be an entrepreneur, you have begun well.

However, you must be flexible and accommodative to face uncertainties in this journey. Before you tread on this path, you must ensure you have robust backup plans and reliable life insurance.

What is Term Insurance for Entrepreneurs?

When planning for risk mitigation, think about everything that would be at risk if you were no longer around. How would your loved ones honour loans and other financial commitments? How would your children go to school? Would there be enough money to allow your family to maintain the lifestyle that your income provided?

Term insurance is a sustainable way to financially safeguard your family with a huge corpus irrespective of what life has in store for you. The family can still survive and children can continue education as you had planned and envisioned. Term insurance is an agreement between the insurer and the insured that guarantees a specific amount called “sum assured” which is paid to the nominee in case of the insured person’s demise during the agreement term.

Contingency Planning as an Entrepreneur

Without a contingency plan, you are exposing yourself to unwanted risks. Here are some benefits of a contingency plan that can help you prevent mishaps:

• Possible negative events are already listed. As a contingency plan lists the actions that need to be taken, you know what to do without panicking.
• Helps minimize damage and allows you to work seamlessly.

Financial contingency planning has two objectives. One, respond to the problem at hand; Two, focus on getting back to normal after the event. Some key financial actions:

1. Cash Reserves:

Always keep some money for a rainy day. Experts suggest businesses hold sufficient cash or liquid assets to cover at least six months of operating expenses. Do the same for personal expenses because your business may not be able to pay you compensation during tough times.

2. Loans:

Check with your banker if temporary moratoriums are offered or if there are possibilities of loan restructuring during challenging times.

3. Insurance:

Motor insurance is mandatory. Property insurance will mitigate losses to property. Term insurance (for a home loan) pays off the outstanding loan in your absence so that your dependents are absolved of that responsibility. Health insurance pays your hospital bills so that your savings are not affected. Term life insurance pays a fixed sum assured to your family to help them manage expenses in case you are not around.

4. Coverage under Married Women Property (MWP) Act, 1874

 This is much-needed protection for your spouse and child as the policy cannot be attached by institutions for repaying loans taken by the husband. MWP act ensures that the sum assured reaches the wife or children.

How to Choose a Term Insurance as an Entrepreneur?

Choosing a term insurance plan is an altogether different process because the factors affecting an entrepreneur are different from those affecting others. Here are a few steps that will make your decision-making process easier:

• Policy Term: An entrepreneur’s career is not restricted by an age defined by someone else. They can work until they feel like working and is fit enough to be working. An insurance that can last long would be useful.
• Premium Payment Term: Salaried individuals, with reasonably stable employment, can pay for the entire term from the salaries that they earn. Entrepreneurs do not have the luxury of either guaranteed salaries or guaranteed employment. The shorter the premium payment term, the better it is. They can pay off the premiums early on, and enjoy life cover for the policy term.
• Adequate Sum Assured: Calculate your liabilities, expenses, and other financial commitments. Add possible milestone related expenses such as marriage, and children’s education. Factor in inflation. Use these numbers to calculate the corpus required for your family to maintain a reasonably comfortable lifestyle.
• Health Check: Undergo all the medical examinations and check-ups as prescribed by the insurer at the time of application. Fill in as many details as possible in the application form. If the company has access to your health record and medical history, there will be no dispute when your family claims the sum assured. Suppressing medical history can lead to denial of the claim.
• Increase Life Cover Later: Your financial needs and family will continue to grow after you buy term insurance. You will have to increase the coverage after marriage and childbirth. Term insurance plans like iSelect Smart360 Term Plan from Canara HSBC Life Insurance let you increase the cover within five years of purchase.
  
  That too, without having to go through underwriting, i.e., just put a request to customer care and get it done. Also, your premium stays locked in at the initial rates. That means the premium doesn’t increase as per your age for the increased sum assured.
• Additional Riders: Check whether the policy offers an additional sum assured on diagnosis of critical illnesses or permanent disability.
• Child Care Benefit: iSelect Smart360 Term Plan offers additional Sum Assured till your child attains 21 years of age. You can live stress-free about your child’s education as this sum assured is over and above the base life cover for the family.

Entrepreneurship is no doubt an exciting journey because you are on a mission to introduce your product or service to the world. You are working tirelessly to realize your dream, impact lives, transform the local economy and generate wealth for yourself and other stakeholders.

However, when you sail in unsteady waters you must not lose sight of the shore and must plan for unforeseen exigencies. Insurance is the best-known risk mitigation tool to ensure that your dependents are not affected at all times.