Is Income Proof Mandatory for Buying Term Insurance in India?

Term insurance is one of the most preferred and cost-effective ways to ensure financial protection for one’s family in case of their untimely demise. However, when it comes to availing of such policies, there are certain mandatory requirements that applicants must fulfill in order to gain coverage.

In this regard, most individuals generally have the question, is income proof required for term insurance?

Scroll down to find the answer, along with other crucial aspects.

Yes, according to the Insurance Regulatory and Development Authority of India (IRDAI) guidelines, you need to provide valid income proof in order to purchase a term insurance policy.

The reason being:

• Income proof is crucial for financial underwriting. It helps determine whether the prospective policyholder has the minimum income requirements in order to purchase the plan.
• Providing income proof is also essential to adhere to the policy’s prescribed documentation requirements. It helps prevent any potential issues that may arise during policy payment, along with reducing the chances of claim rejection.

No, it is not possible to get a term insurance policy without proof of valid income. However, there are several types of applicants who may not have a stable income source. Under certain circumstances, the insurance company considers alternate documents as proof of income.

However, these documentation requirements will tend to vary across providers.

For Housewives

Housewives can submit proof of their husband’s income as proof of income. The type of eligible documents in this regard depends upon whether the latter is salaried or self-employed.

Additionally, housewife applicants can submit the following documents:

• Self-attested copy of their savings bank account statements for the past 6 months
• SIP statements in the housewife’s name for the past 12 months
• Last 6 months’ credit card statements (card should be in the housewife’s name)
• Home loan repayments in the last 12 months (property should be in the housewife’s name and must not be co-owned)
• Car’s latest Insured Declared Value (IDV) (vehicle must be owned by the housewife)
• Policy document of the husband’s term insurance plan

For Unemployed Individuals

Unemployed individuals can apply for a term insurance plan by submitting the proof of ownership of underlying assets like property. This will show that they have the financial capacity to timely pay the premium amount.

Moreover, if they are temporarily out of work, they can discuss their exact employment status with the insurance company. Also, they can opt for a basic plan with a small sum assured. These schemes usually require minimal underwriting and come with affordable premiums.

Thus, doing so will not only increase the chances of the applicant getting insurance coverage but also make it easier for them to make timely payments.

For Freelancers

In India, freelancers fall under the self-employed segment. So, such individuals can submit all the documents required by insurers for this applicant type as income proof in order to apply for a term insurance plan.

Some of the common documents required in this regard are:

• Income Tax Returns of the past 2 assessment years, along with the Computation of Income (COI)
• Latest 3 years' audited business accounts with shareholding patterns and/or partnership deeds/profit and loss statements along with balance sheets/registration of business, etc.

Income proof serves as a crucial requirement for financial underwriting by insurance companies due to the following reasons:

• Providing proof of income is a crucial requirement for insurers in order to determine the applicant’s eligibility.
• It helps assess the person’s income, financial status, associated risk and their ability to timely pay the premium.
• These documents also help insurance companies to calculate the amount of coverage and the associated premium amount.
• Submitting the income proof also enables the applicant to ensure that they are not over-insured or under-insured, thus getting the right amount of coverage that is required to financially secure their loved ones.
• Also, providing proof of income can help individuals lock in a lower premium amount. Insurance companies tend to offer lower premiums to people with regular income and a stable financial standpoint.

A lack of proper proof of income can often lead to the insurer rejecting a claim on the policy. To ensure that it does not come to that, consider following the tips mentioned below:

• Avoid providing false or incorrect information in the policy form.
• Disclose pre-existing medical conditions and family medical history when buying the policy.
• Keep details of the nominees and beneficiaries up to date.
• Disclose any previous or existing plans when buying the term policy.
• Make timely premium payments in order to avoid policy lapse.

Now that you have the answer to the question, is income proof required for term insurance, all that you need to do is find a term insurance policy that suits your needs. In this regard, do enquire about the insurer’s income proof requirements and ensure that you provide all the required documents in order to increase your chances of gaining coverage. 

Also, remember to go through the policy’s terms and conditions and provide correct information to avoid claim rejections in future.