Salary Slip Significance: Why Term Insurance Requires Proof Of Income

When buying term insurance, you must comply with certain documentation processes. Income proof is mandatory for buying a term plan. This is because the purpose of term life insurance coverage is to offer financial safety to your family. The amount of financial support you can buy as term insurance cover depends on your capacity to earn. Your income provides the basis for understanding your financial status.

Therefore, you need to provide proof of a regular income when buying term insurance coverage. You don’t have to be salaried or self-employed to have an income and income proof. Even homemakers who are receiving interest income, a pension, or rent can apply for term insurance with their proof of income.

Salary slips of the last three months are among the documents that qualify as income proof for a term plan.

Income proof is mandatory for term insurance

Term insurance is a type of life insurance policy that provides comprehensive financial protection for a limited period against the premium paid. It provides coverage against death. If the policyholder dies before the end of the policy period, the insurance company pays the death benefit (equal to the sum assured) to the beneficiary.

Term insurance plans are affordable and easy to buy. The insurance company asks for some personal details and documents when you apply for a term life insurance plan, including proof of income. This is because the purpose of term life insurance coverage is to offer financial safety to your family. The amount of financial support you can buy as term insurance cover depends on your capacity to earn. Your income provides the basis for understanding your financial status.

Therefore, you need to provide proof of a regular income when buying term insurance coverage. However, you don't have to be salaried or self-employed to have an income and income proof. Even homemakers who receive interest income, a pension, or rent can apply for term insurance with proof of income.

Documents that can be used as income proof for a term insurance plan

• Salary slip (minimum for the) last three months
• Income Tax Returns (ITR) (for the) last three assessment years
• Bank statement showing your salary/income (for the) last six months
• Audited profit & loss account and balance sheet (for the) last three assessment years
• Latest salary certificate from your employer
• CA Certificate (not more than 2 months old)
• Agricultural income certificate (not more than 1 year old)
• Land records and Income Assessment (current)
• Form 26 AS (last financial year)
• Mandi Receipts (last 2 months)

• The insurance company can determine the risk factor that you carry based on your income statements. If you have a stable source of income, the chances of defaulting on premium payments are low.
• Submitting income proof for term insurance also removes the risk of being over-insured. The insurance provider can recommend a suitable sum assured for you based on your current income.
• It is also essential to understand that income proof is a vital document that all insurance companies evaluate before offering you a term insurance plan. In case of any mismatch of information or if the documents are found to be forged, the insurance company can reject the claim at a later stage.

Salary slips are one of the accepted documents for income proof

The following documents are generally accepted as proof of income:

• Salary slips of the last three months
• Latest income tax returns of the previous two to three assessment years
• Bank statement showing salary/income for the last six months
• Latest salary certificate from the employer
• CA Certificate (not more than 2 months old)
• Agricultural income certificate (not more than 1 year old)
• Land records and income assessment (current)
• Form 16

It is important to note that the specific documents required may vary depending on the insurance provider and the type of applicant (salaried, self-employed, housewife, etc.). Therefore, it is recommended to check with the insurance company for the exact requirements.

Other documents that can be used as income proof

Income proof is mandatory when buying term insurance. However, it is not limited to salary slips. Here are some other documents that can be used as income proof:

Tax Documents

One of the most common ways to prove your income is by providing tax documents. These include:

• Last year's federal tax return (IRS Form 1040 in the US)
• W-2 forms (for employed individuals)
• 1099 forms (for freelance or contract work, dividends, or interest)

Bank Statements

Bank statements can be used as supporting evidence for other documents, especially when it comes to self-employed individuals. They provide a comprehensive view of your bank account, including transactions conducted within a specific timeframe. This can be useful in demonstrating consistent cash flow, such as monthly deposits from clients or employers.

Court-Ordered Payments

Court-ordered payments such as alimony and child support can also serve as proof of income. These documents can be obtained from the relevant court if you don't have existing records.

Unemployment Benefits or Worker's Compensation

If you are currently unemployed but receiving unemployment benefits, worker's compensation, or disability insurance, these can be used as proof of income. You can obtain the necessary documents from your insurance company or employer.

Pension Distribution or Social Security Benefits

Pension distribution statements or Social Security Benefit Verification Letters can be used as proof of income for retirees.

Profit and Loss Statement

Self-employed individuals may use a profit and loss statement to demonstrate their income. This document summarizes a business's costs, expenses, and revenues.

Proof of Income Letter

If none of the above documents are suitable, you can request a proof of income letter from your employer. This letter can verify your employment status, salary, and duration of employment.

Why income proof is necessary for term insurance

Income proof is necessary for term insurance as it helps insurance companies determine the amount of coverage that can be provided to the applicant. It also helps them decide the cost of the policy premiums.

• Financial underwriting: Income proof is crucial for financial underwriting. Insurance companies need to know the applicant's income to determine the maximum life cover they can offer. Income proof helps insurance companies assess the applicant's financial situation and ability to pay premiums.
• Determining coverage and premiums: Insurance companies use income proofs to determine the sum assured or total life coverage that can be provided to the applicant. It also helps them set the policy's premium rates.
• Risk assessment: By examining the applicant's income proof, the insurance company can evaluate the risk and their capacity to pay the premiums on time.
• Avoiding over-insurance: Over-insurance occurs when the insured purchases more coverage than their actual cash worth. Income proof helps prevent this by ensuring the insurance coverage aligns with the applicant's financial situation.
• Claim approval: Submitting income proof when purchasing term insurance can help prevent issues with claim approval. A mismatch in income statements may lead to policy lapse or claim denial.

While it is possible to purchase term insurance without income proof, providing this documentation is essential for financial underwriting and determining the appropriate coverage and premiums.

What are the other documents required for term insurance

When purchasing a term insurance plan, you will need to submit a variety of documents to the insurance company. These documents are necessary for the insurer to assess your financial situation and determine the appropriate coverage for you. Here is a list of the documents you will typically need to provide:

Proof of Identity

An official identity document helps the insurer verify your identity and reduce the risk of fraud or theft. You may be asked to provide any one of the following documents as proof of identity:

• Passport
• Voter ID card
• Aadhaar card
• Driver's license
• Job card issued by NREGA
• National Population Register

Proof of Address

In addition to proof of identity, you will also need to provide proof of your permanent address. This helps to reduce the chance of fraud and ensure that you are a resident of the country. Any one of the following documents can be used as proof of address:

• Utility bills (electricity, water, etc.) not older than 2 months
• Pension Payment Orders (PPO) for retirees
• Municipal Tax Receipt or Property Tax Receipt
• Letter of allotment of accommodation from a recognised employer
• Bank or Post Office savings account statement

Proof of Age

The insurer will also require a document that serves as proof of your age to ensure you meet the eligible age range for the term insurance plan. Your age can impact the premium amount, so it is important to provide proof of your age with any one of the following documents:

• Birth certificate
• School or college leaving certificate
• Marriage certificate
• Passport
• Voter ID card
• Driver's license

Income Proof

Income proof is crucial for term insurance as it helps determine the amount of coverage you can receive and your ability to pay the premiums. The following documents can be used as proof of income:

• Salary slips for the last 3 months
• Income Tax Returns (ITR) for the last 2-3 years
• Bank statements showing your salary/income for the last 6 months
• Audited profit & loss account and balance sheet for the last 3 years
• Latest salary certificate from your employer

Medical Documents

Your current health condition and medical history are important factors in determining your eligibility for term insurance and the premiums you will pay. The insurer may require you to undergo medical tests and provide past and recent medical records.

Official Photographs

Finally, you will need to provide recent passport-size photographs as part of the documentation process.

Frequently asked questions