Be it taking admission to a school/college or applying for a passport or opening a bank account, one of the most vital things you’ll need to do is submit documents. You'll be required to provide a number of documents, like proof of age, income, address, and so on. Your eligibility will be determined based on these documents. 

Similarly, you’re required to submit several documents while applying for term insurance. The insurer may ask you to submit document proofs, like age, address, identity, income, etc. Now, is it really necessary to submit all these documents? Can you buy term insurance without some documents, such as proof of income? 

Let’s find out - in this article. 

What Are The Documents Required To Buy Term Insurance?

Depending on the insurer, sum assured chosen, health declarations, and nationality, the documents you’ll have to submit while buying a term insurance policy may vary. Below is a list of some common documents that are needed while buying term insurance.

• Identity Proof: Aadhaar card, passport, voter ID card, driving licence, authority letter verifying identity, etc.
• Age Proof: PAN card, driving licence, birth certificate, passport, etc.
• Address Proof: Ration card, bank account statement, electricity bill, telephone bill, voter ID card, passport, pension order issued by the government, etc.
• Income Proof: Income tax returns, salary slips, employer’s certificate (for PSUs), latest employment contract letter, Income Tax assessment order, Form 16, CA’s certificate showing income of past 3 years, etc. If you’re self-employed or salaried, the insurer may ask you to submit standard income proof documents. 
  • If you’re salaried, you may have to submit bank statements and salary slips of the last 3 to 6 months. 
  • If you're self-employed, you may have to submit Income Tax Returns and Computation of Income of the last 3 years. 
• Other Documents: Apart from the documents we’ve mentioned above, insurance companies may ask you to submit additional documents to support your application. For instance, if you have a pre-existing medical condition, the insurer may ask you to submit medical reports.

Is It Possible To Buy Term Insurance Plans Without Income Proof?

You cannot buy mainstream plans without income proof in India. 

However, the IRDAI has introduced Saral Jeevan Bima - a standard term insurance product, where income proof is not required. This product however can be difficult to get, as insurers are found to be usually not keen to sell these plans.

Why Do Insurers Ask For Income Proof Documents?

Insurers establish your need/eligibility for term insurance on the basis of earned income to avoid moral hazards. 

Moral Hazard - A moral hazard occurs when a person buys insurance only with the intent of making a disproportionate claim. A common instance is a person buying insurance beyond their needs. For instance, if they earn less than ₹10,000 monthly and try to buy an insurance plan with a cover amount of ₹1 crore. So, a moral hazard promotes the idea of risk-taking for personal gain. 

Income is one of the most important criteria based on which the insurer decides whether to offer you term insurance or not. Income also impacts the maximum term insurance coverage you’re eligible for. Insurance companies calculate the maximum sum assured you can buy based on your income and the age at which you buy the policy. Usually, this is done by multiplying your income by certain factors (based on your current age) - such as 25X or 20X or 15X. This factor will vary across insurance companies. 

For instance, Kavya, 25, has an annual income of INR 10 Lakhs. She is thinking about purchasing a term plan from Insurance Company 'A'. As per this insurance company, people in the age bracket of 20 to 30 years are eligible to buy a cover that is 20X their annual income.

So - 

In case you already have an existing life insurance policy, the cover amount of that policy will be deducted from the term insurance cover you can buy. 

Let’s take Kavya’s example again. 

Say Kavya already has a life insurance plan of INR 50 Lakhs. In this case, the maximum term insurance cover she can opt for will be INR 1.5 Crores (2 Crore - 50 Lakhs).  So, this is how factors such as your age, income, etc. impact your term insurance policy coverage. 

Why Are Income Proof Documents Necessary?

Here are three reasons why it is important to submit income proof while buying term insurance - 

1. To avoid moral hazard. As we read above, insurers assess your term insurance need basis your earned income. For those who have no earned income, there is no need for term insurance (as their death doesn’t impact the family income). 
2. The insurer determines the maximum sum assured you can choose based on the income proof documents you submit. 
3. The income proof documents help insurers in deciding the premium amount. Based on the documents you submit, the insurer can determine whether you’ll be able to afford the term insurance premiums or not. 

So, that is all about the importance of submitting income proof documents while buying a term insurance policy. If you have any further questions related to buying a term plan without income proof, you can post them on the Beshak Insurance Forum and get answers from vetted experts!