Running your own business means irregular income. Some months are great. Some months barely break even.
This makes insurance even more important. But also trickier to get.
Let’s understand how it works for self-employed people.
What is the Claim Settlement Ratio?
Simple explanation first.
Suppose 100 families file claims with an insurance company. The company pays 96 families. Rejects 4 families.
The claim settlement ratio is 96%.
The higher the number, the better the company. Above 97% is excellent. Between 93-96% is decent. Below 90% is concerning.
This number tells you one thing: when your family files a claim, will they actually get the money?
That’s why this ratio matters so much.
Why Self-Employed Face More Scrutiny
When salaried people apply for term insurance for self-employed, they show salary slips. Clear income proof. Companies feel confident.
Self-employed? Income fluctuates. One year you earn 15 lakhs. Next year, 8 lakhs. Third yea,r maybe 20 lakhs.
Insurance companies see this as a risk. They investigate more. Ask more questions. Sometimes, they charge higher premiums.
Not unfair really. Just their way of being careful.
Income Proof Complications
Salaried people have it easy. Three months’ salary slips and you’re done.
Self-employed individuals need different documents:
● ITR for the last 2-3 years
● Bank statements showing business transactions
● GST returns, if applicable
● CA-certified income statements
● Business registration documents
More paperwork means more time. More verification. Sometimes more stress.
But without proper documents, getting approved becomes very difficult.
How Companies Calculate Risk
Insurance companies look at several things for self-employed applicants.
● Business stability: Running for 5 years? Good. Started last year? They worry.
● Income consistency: Earning similar amounts yearly? Good. Wild fluctuations? Red flag.
● Business type: Software freelancer? Usually okay. High-risk businesses like construction? More questions.
● Debt levels: Heavy business loans? They factor that in.
All this affects whether you get approved and what premium you pay.
Why High Claim Settlement Ratio Matters More
For self-employed individuals, this becomes extra critical.
Your income documentation is already complex. If something happens and a family files a claim, the company will investigate thoroughly.
They’ll check if the income shown was accurate and whether the business was real, if any information was hidden.
A company with a 98% claim settlement ratio is more likely to pay without creating problems.
Company with 88% ratio? They reject more claims. Your complex income situation gives them more reasons to question.
Choose high ratio companies. Pay a bit more if needed. Worth it.
Coverage Amount Decisions
How much term insurance for self-employed should you buy?
Can’t use the simple “10 times annual income” formula. Your income changes yearly.
Better approach:
Take the average income of the last 3 years. Multiply by 10-15. That’s basic coverage needed. Add business debts. Add family expenses for 10 years. Add children’s education costs. This gives a realistic coverage amount.
Example: Average income 12 lakhs. Business loan of 15 lakhs. The family needs 50 lakhs for 10 years. Total needed: Around 1.8-2 crores.
Medical Tests and Approvals
For self-employed individuals, companies often ask for more detailed medical tests.
Why? They think self-employed people might hide health issues because getting insurance is harder.
Not always true. But that’s their thinking.
Be prepared for a thorough health screening. Blood tests, ECG, and sometimes stress tests.
Take tests seriously. Don’t hide anything. Honest information prevents claim rejection later.
Documentation During Claims
When family files a claim after your death, the company will verify everything.
For self-employed individuals, they check:
● Was the income declared accurate?
● Did business actually exist?
● Were there any undisclosed debts?
● Was occupation information correct?
If documentation during application was proper, claim settlement is smooth.
If anything was exaggerated or hidden, problems start.
This is why working with honest documentation from start matters.
Business Partnership Scenarios
If you have business partners, term insurance for self-employed becomes even more important.
You die. Your family gets insurance money. But what about your business share?
Consider having enough coverage to:
● Pay off your share of business debts
● Provide buyout money if partners want to continue without family involvement
● Support the family till business matters are settled
This might mean higher coverage than regular employees need.
Freelancers and Consultants
Freelancers face unique challenges. No business registration sometimes. No employees. Just individual skills.
Insurance companies often treat them like self-employed with extra questions.
Keep these ready:
● Contracts with clients showing regular work
● Bank statements with payment deposits
● ITR showing professional income
● Client references if needed
More proof means easier approval.
The Tax Saving Angle
Premium paid qualifies for Section 80C deduction. Maximum 1.5 lakhs yearly.
For a self-employed person paying a 20,000 premium, it saves about 6,000 in taxes.
Good benefit. But remember – buy insurance for protection. Tax saving is a bonus.
Don’t buy inadequate coverage just to fit an 80C limit.
Final Reality
Claim settlement ratio isn’t just a number. It’s the probability of your family actually getting money when needed. For self-employed individuals, documentation is complex. Income is variable. Risk perception is higher.
This makes choosing a high claim ratio company even more critical. Do it this month. Not when you feel ready. Not when income stabilises. Now. Because protection can’t wait for perfect timing.
