Annual income is a key factor when buying term life insurance

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Have you ever wondered that when buying a term life insurance policy, the insurer asks you to mention your annual income in the application form? Also, you cannot skip it as it is a necessary step.

“It is mandatory for insurers to ask for proof of income when purchasing a policy, not only online but also offline. The income of the applicant is one of the main criteria on which the company decides whether or not to offer insurance. Therefore, you need to be prepared with proof of income before you apply for life insurance, ”said Santosh Agarwal, Business Manager (Life Insurance), Policybazaar.com.

There are several reasons why an insurance company asks this question. The first is that life insurance is considered an income replacement, and the insurer wants to know how much you earn so that the coverage you get relates to the income that would be replaced when you die as a death benefit.

“In addition, proof of income is required because it shows your commitment to pay premiums on time. When you insure, the insurance company needs to know your financial situation to assess your earning capacity, your financial income projections and whether or not you would be able to pay the premiums. This is why insurers prefer salaried people because they have a stable income and a greater chance of not defaulting on premium payments, ”Agarwal said.

“Other details like years of service and designation also make a difference, especially if you are in the high risk job category. This is based on the assumption that with seniority and experience, the amount of manual labor should decrease, as well as the exposure to risks, ”Agarwal said.

In addition, your financial statements help the insurer decide on the sum insured or total life coverage that can be offered to you. This avoids the possibility of overinsurance, in which the policyholder has purchased more coverage than the actual cash surrender value. This can pose a danger to the insurer and may result in the denial of an insurance claim.

“The insurance company, in the event of overinsurance, can suffer many losses because the insured may be tempted to misrepresent to profit from the insured loss by overstatement. Overinsurance results in compensation payable by the company beyond the actual loss suffered by the insurer, either through false claims or due to the overvaluation of insured assets, ”Agarwal said.

Thus, in the event of a discrepancy in the tax return, the policy may lapse and an insurance claim may be refused. Therefore, presenting proof of income when purchasing term insurance protects your beneficiary from the rejection of the policy claim.

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