Life insurance processing for NRIs

TeamAckoJul 14, 2024

Life insurance is a key financial planning pillar for non-resident Indians (NRIs) living abroad to secure their family's future in India. However, navigating insurance needs can be challenging given NRIs' distinct lifestyles, risk exposures overseas, and income considerations across different currencies.

This makes specialised NRI-focused life insurance plans essential to ensure adequate coverage, flexible payment options, and enhanced financial security for families in case of unforeseen events. This guide will help NRIs understand their life insurance, benefits, eligibility, documentation, and regulations for obtaining life insurance in India. Read ahead for related details.

Contents

• What is NRIs Life Insurance?
• How Does Life Insurance for NRIs Work?
  • Determine Adequate Coverage
  • Choose Payment Frequencies
  • Evaluate Policy Duration
  • Consider Relevant Riders
  • Streamline Documentation
• 4 Key Benefits of Life Insurance for NRIs
  • Cost-effective plans
  • Wide Coverage
  • Ease of Purchase
  • Customised Plans for NRIs
• 3 Types of Life Insurance Policies for NRIs
  • Term Insurance
  • Whole Life Policies
  • Endowment Policies
• NRI Life Insurance Cash Value Growth
• Eligibility Criteria: Life Insurance Policy for NRIs
  • Country of residence requirements
  • NRIs from specific countries
  • Age limit requirements
• Pre-existing Medical Conditions
• Rules and Regulations for NRIs While Buying Life Insurance in India
  • Maturity and death benefits
  • Tax implications
  • Compliance With FEMA regulations
  • Receiving policy payouts
• How to Buy NRI Life Insurance?
• Key Documents Required for Buying a Life Insurance Policy for NRIs
• Who Should Consider Buying a NRI Life Insurance Policy in India?
• Additional Riders Available
• Choosing the Right NRI Life Insurance  
• Factors Affecting NRI Life Insurance Premiums  
• Rules and Regulations for NRIs While Buying Life Insurance in India
  • Maturity and death benefits
  • Tax implications
  • Compliance With FEMA regulations
  • Receiving policy payouts
• Conclusion
• Frequently Asked Questions

What is NRIs Life Insurance?

Life insurance policies for NRIs refer to plans specially designed by insurance providers, keeping in mind the unique needs and migration lifestyles of Indians living abroad. These policies aim to offer financial safety nets through higher coverage and relevant features per typical NRI risk profiles.

Life insurance gives the twin benefits of long-term savings and risk coverage to safeguard your family’s future in case of unfortunate incidents. NRIs can subscribe to term or endowment plans based overseas, denominated in INR or foreign currencies.

Let’s understand life insurance for NRIs with an example: 

Neha, a 35-year-old software engineer living in Canada, wants to secure her family's financial security in Mumbai, India. She chooses a Unit-Linked Insurance Plan (ULIP) for NRIs, with a coverage amount of INR 50 lakhs. Neha commits to paying an annual premium of INR 1 lakh for 20 years.  By investing in various funds within the ULIP, including equity and debt, Neha aims for long-term growth aligned with her risk tolerance. With tax benefits under Section 80C, Neha reduces her taxable income while increasing her investible surplus.  Over time, her ULIP investments grow significantly, providing a substantial corpus for her family's future needs.  In the unfortunate event of her demise, the ULIP ensures her family receives the sum assured, offering them financial stability and support from afar.

How Does Life Insurance for NRIs Work?

Here are the steps on how life insurance for NRIs works:

Determine Adequate Coverage

• Analyse dependents' financial needs in your absence, including loans, living costs, future education, etc.

• Account for lifestyle inflation and currency value erosion over long-term

• Pick an insured sum matching these projected needs, offering comprehensive safety

Choose Payment Frequencies

• Select premium payment modes - quarterly, half-yearly, or annual instalments

• Match payment frequency to your income flows abroad

• Leverage online transfers through NRE accounts to pay premiums abroad

Evaluate Policy Duration

• For term insurance, aligning policy tenure to period dependents would require financial support

• Coordinate with current life stage needs and future responsibilities

• Extend coverage as family needs to grow over time

Consider Relevant Riders

• Assess add-ons like critical illness covers basis typical NRI risk scenarios

• Account for challenges in accessing quality, affordable healthcare abroad

• Attach optional riders enhancing coverage as suitable

Streamline Documentation

• Intimate insurer immediately in case of an incident by providing mandatory documents

• Ensure submissions are proper without gaps for faster processing

• Upon verification, due payouts in foreign currency or INR get released to beneficiaries

4 Key Benefits of Life Insurance for NRIs

NRI life insurance policies offer cost-effective, comprehensive coverage with easy purchase and customisation options. Here are some of its benefits.

Cost-effective plans

NRIs are drawn to Indian life insurance policies for their competitive premium rates and tax benefits. These plans are more affordable than foreign offerings and provide similar coverage and benefits. Opting for a cost-effective NRI policy from India allows individuals to secure substantial financial protection without straining their finances excessively. Many of these plans come with guaranteed investment returns, making them an appealing choice for NRIs looking to build a safety net in India.

Wide Coverage

Life insurance provides NRIs with wide coverage options catering to various needs. Term insurance plans offer financial security and substantial life cover over an agreed-upon tenure, safeguarding the policyholder's family in case of death. Some insurers also offer riders such as Critical Illness or Disability Benefits. NRIs can confidently invest in comprehensive policies tailored to meet their unique circumstances and ensure financial stability for their loved ones back home. Online platforms make the process easy and facilitate comparison between companies for competitive premiums. These extensive coverage options provide peace of mind, making life insurance an essential part of any NRI's financial planning toolkit.

Ease of Purchase

Purchasing life insurance as an NRI is convenient, thanks to online accessibility. Proposal forms can be completed easily on the insurance company's website. Approval times are fast, with many companies offering instant approval based on age and health conditions. Payment can be made through international credit cards or foreign currency accounts; minimal documentation is required. 

Customised Plans for NRIs

NRIs can now benefit from customised plans tailored to their needs and goals. These policies cater to various requirements, such as retirement, child education, and savings. This allows NRIs to choose a plan that aligns with their financial goals and aspirations.

For example, NRIs in the US can opt for an Indian life insurance policy with a shorter premium payment term to get higher coverage at lower premiums than those offered in their country of residence. Customised short-term policies can also be created for NRIs who only require coverage for a limited duration during their visits back home or based on their work schedule.

By providing tailor-made plans, insurers enable NRIs to buy a policy that suits their specific needs and preferences, ensuring they are neither over-insured nor underinsured. It also allows greater control over premium payments, with payouts aligned with personal objectives upon maturity/death claims as per Foreign Exchange Management Act (FEMA) regulations.

3 Types of Life Insurance Policies for NRIs

When it comes to life insurance options for NRIs, there are three main types of plans to evaluate: term insurance, whole life, and endowment policies. Each serves different purposes.

Term Insurance

Term insurance comes to mind when we think pure protection just guards dependents against financial loss without investment components. These provide generous life coverage for a set duration - say 20 or 30 years- that aligns with career earnings potential. Term plans are handy to secure family fiscally and kids’ education if earnings are cut short prematurely. For NRIs, premium payment flexibility allowing periodic transfers from overseas income is key. Critical illness add-ons also make sense, given healthcare access issues abroad.

Talking about term plans, ACKO Life Flexi Term plan is a popular plan among consumers given how flexible it is compared to traditional term insurance products out there. And for a good reason, too, from a buyer's perspective! The plan allows you to customise and alter your coverage aspects even after purchase as per life's changing realities and new responsibilities cropping up over time.

Whole Life Policies

Whole life insurance plans offer the dual advantage of lifelong financial coverage till, say, age 100, along with steady cash value buildup that can be borrowed against in times of need. Premiums are charged through adulthood, but the policy pays death benefits no matter when one passes them on. These suit estate planning purposes, ensuring wealth transfer to heirs smoothly. NRIs can design adjustable coverage protecting home assets like ancestral property as well.

Endowment Policies

Endowment plans provide medium-term coverage for a pre-defined duration while investing a corpus to be paid at maturity. So, alongside risk cover protecting dependents in case of mishaps, you grow a retirement nest egg that gets handed to you on the maturity date if all goes well. This allows forced long-term savings to cushion post-retirement needs. NRIs can time their return to leverage maturity benefits.

NRI Life Insurance Cash Value Growth

NRIs looking to invest in insurance policies can consider cash-value life insurance plans. These policies build up a cash value component that grows tax-deferred over time at a guaranteed rate of return. If structured properly, the policy's death benefit and cash value can offer NRIs stable growth on maturity, helping meet financial goals.

How Does Cash Value Grow Over Time?

The cash value component in permanent life insurance policies grows through guaranteed interest crediting and potential dividends, allowing it to grow steadily over the years. For example, let's say an NRI purchases a whole-life policy with an annual premium of Rs. 1 Lakh and a guaranteed interest rate of 4% per year.

In the first year, about Rs. 25,000 of the premium goes towards the cash value, and the company will add another guaranteed 4% interest on top, so the first year-end cash value is Rs. 26,000. In the second year, another Rs. 25,000 gets added to bring it to Rs. 51,000. The insurance company then credits 4% guaranteed interest to Rs. 51,000, bringing the total cash value to Rs. 53,000 at the end of year two. 

This compounding effect continues yearly, allowing the cash component to grow exponentially while providing lifelong insurance coverage. Policy dividends and high-performing market returns can significantly boost this cash value.

Eligibility Criteria: Life Insurance Policy for NRIs

Meeting eligibility criteria is crucial when purchasing life insurance in India as an NRI. Here are the details.

• Country of residence requirements

This includes country of residence requirements, typically providing a valid passport and proof of residency. Certain insurers may have additional requirements for residents of specific countries, such as extra documentation or higher premiums. Researching and comparing policies from different insurers can help NRIs secure affordable and comprehensive coverage that meets their needs.

• NRIs from specific countries

NRIs residing in all countries might not be eligible to opt for life insurance in India. You need to meet the criteria set by the insurer.

Age limit requirements

Age is a crucial component when purchasing life insurance policies in India as an NRI. Most insurers require individuals between 18 to 65 years of age for Term Insurance. Younger policyholders receive lower premiums since insurers perceive them as less risky. Select a plan that aligns with your preferences and circumstances for maximum benefit.

Pre-existing Medical Conditions

Disclosing any pre-existing medical conditions is important when purchasing a life insurance policy. These refer to any medical condition you already have before applying for the policy. Failure to disclose them may cause non-payment of claims in case of an unfortunate event. Knowing about waiting periods, premium loading, and medical check-ups is crucial, as they can affect your premiums and coverage. 

For instance, if you have hypertension or diabetes, your premiums might be higher. It's essential to know the waiting periods attached to certain illnesses. Disclosing pre-existing medical conditions can help find an affordable policy that covers all major risks associated with death and disability at reasonable rates based on individual circumstances like age group & occupation status. 

Rules and Regulations for NRIs While Buying Life Insurance in India

When purchasing life insurance as an NRI in India, there are certain rules and regulations to be aware of. Here’s a list.

• Maturity and death benefits

Understanding the maturity and death benefits of policies is crucial for NRIs. A policy reaches maturity when the term ends successfully without claims, and the payout includes premiums paid and interest/bonus earned. 

In the unfortunate event of death during the term, compensation is provided to the nominee/dependents as per the sum assured. While these payouts are tax-free in India, NRIs should consult their financial advisor/tax consultant for any tax implications based on their country of residence.

• Tax implications

Premiums paid towards the policy are eligible for tax deductions under Section 80C of the Income Tax Act, and NRIs can claim tax benefits on their investment. 

However, tax rules and regulations vary depending on residency status. For example, an NRI investing in an Indian Life Insurance plan but considered a resident taxpayer by Indian law because of spending over 182 days per year in the country will be taxed according to Indian law.

Conversely, an NRI who is a resident taxpayer of another country where they earn their income must pay taxes only per that country's taxation laws. NRIs interested in purchasing life insurance need to review both Indian and non-Indian taxation laws before buying a policy to maximise their investment benefits and avoid any unnecessary penalties.

• Compliance With FEMA regulations

FEMA regulations require NRIs to report their policy purchases to the Reserve Bank of India and comply with proper reporting of premiums and payouts. Non-compliance can cause penalties and fines. Working with a reputable insurance company can help ensure smooth adherence to FEMA guidelines. 

• Receiving policy payouts

NRIs have two options for receiving payouts: in India or their country of residence. If they choose India, applicable procedures must be followed. If they opt for their country of residence, there could be additional charges due to exchange rate fluctuations or tax regulations. Comparing both options before ensuring hassle-free financial support for loved ones is essential.

How to Buy NRI Life Insurance?

There are a few convenient ways NRIs can purchase life insurance while living abroad:

• Online Purchase: Various Indian insurers allow online purchases through their website or portal. One can apply, pay premiums, and receive policy documents digitally without visiting India.

• Purchase During India Visits: NRIs travelling to India can directly approach insurers during their stay and complete policy purchases by submitting the required documents. This allows face-to-face assistance in selecting suitable products.

• Authorising Friends/Family: By providing a Power of Attorney, an NRI can authorise family members or friends still living in India to purchase a policy on their behalf from the insurer's local branch. The premiums and benefits are still managed directly by the NRI policyholder.

Based on factors like convenience, accessibility to policy servicing, payment modes, and tax implications in foreign countries, NRIs can choose the most suitable purchase option.

Key Documents Required for Buying a Life Insurance Policy for NRIs

To purchase life insurance as an NRI, you must submit various documents, including the following.

1. Submit an attested copy of your passport to prove your identity and nationality.

2. Fill out an application or proposal form with basic information and policy preferences.

3. If required, provide health documents, including medical reports and doctor's certificates.

4. Show proof of income, such as salary slips or income tax returns for income-related policies.

5. Submit age proof, address proof, and any other identity documents as requested by the insurance company.

Who Should Consider Buying a NRI Life Insurance Policy in India?

There are several life situations where Indian insurance coverage can greatly benefit NRIs living overseas. 

1. NRIs with Dependents in India: Those supporting aged parents or differently abled siblings back in India should secure their dependents via adequate protection plans.

2. Estate Planning for Wealthy NRIs: HNIs and ultra HNIs living lavishly abroad can consider purchasing a policy to pass on legacy wealth to heirs tax efficiently.

3. Retired NRIs Returning Home: Senior citizens returning to India after their income-earning years abroad can continue insurance purchased earlier to retain health and life benefits.

4. NRIs Buying Property in India: An insurance policy can allow NRIs to meet their mortgage repayment liabilities even while living abroad in case of adversity. 

5. Young NRI Parents: Securing young children's future in case of loss of a parent, especially single parents, through adequate life cover makes good sense.

Additional Riders Available

In addition to core life cover, insurers offer supplementary covers called Riders to enhance protection:

a. Term Rider: Provides extra life insurance coverage as desired by paying additional premiums regularly. This is useful for families with growing financial responsibilities over time.

b. Critical Illness Riders: Offers lump sum payout on diagnosis of pre-specified critical illnesses like Cancer, Stroke, Heart Attack, etc. This is useful given the higher overseas medical costs.

c. Accident and Disability Riders: Provides extra financial protection in unfortunate cases of loss of life or income due to accidents, injuries, or disabilities.

d. Waiver of Premium Rider: Premium payment gets waived on conditions like disability, critical illness, or incapacitation that prevents the policyholder from paying the premium. This offers useful financial security in troubled times. NRIs can customise plans with relevant riders based on their finances and the risks foreseen.

Choosing the Right NRI Life Insurance  

While zeroing in on a suitable NRI insurance policy, consider analysing aspects like:

1. Entry Age and Policy Tenure: Starting early with lower premiums and building a higher cover over time to match the growing responsibilities peak is ideal.

2. Sum Assured Amount: Evaluate total assets and future liabilities to ascertain ideal life plus rider cover. Factor in inflation and lifestyle changes.

3. Premium Payment Flexibility: Option for multi-currency premium payments, including INR, USD, GBP, EURO, etc., as per overseas income potential.

4. Cash Value Accumulation: Project tax-adjusted returns from the policy's guaranteed cash value buildup at maturity to make informed decisions. 

5. Taxation Applicability: Understand tax incidence in India and your country of residency before committing to a product.

6. Claims Settlement Record: Review insurer's claims data, dispute ratios, and expediting mechanisms before purchase.

Factors Affecting NRI Life Insurance Premiums  

NRI policy premium costs depend upon parameters like:

1. Entry Age and Medical Reports: Key decisive factors for underwriting. Being young and healthy fetches lower quotes.

2. Foreign Country Risk Profile: Higher multipliers for historically high-risk nations prone to calamities, strife, health hazards, etc, raise chances of early claims.

3. Hazardous Occupations: Dangerous or very stressful professions again raise policy costs due to higher loss probabilities. 

4. Personal Habits: The Insured's lifestyle habits around smoking, alcohol consumption, etc, also impact policy pricing due to associated health consequences.

5. Choice of Add-ons: Opting for more riders pushes base premiums but offers wider risk abatement.

Thus, by prudently assessing individual risks, responsibilities, and returns, NRIs can make optimal life insurance investments, delivering long-term financial security for themselves and their loved ones.

Rules and Regulations for NRIs While Buying Life Insurance in India

When purchasing life insurance as an NRI in India, there are certain rules and regulations to be aware of. Here’s a list.

• Maturity and death benefits

Understanding the maturity and death benefits of policies is crucial for NRIs. A policy reaches maturity when the term ends successfully without claims, and the payout includes premiums paid and interest/bonus earned. 

In the unfortunate event of death during the term, compensation is provided to the nominee/dependents as per the sum assured. While these payouts are tax-free in India, NRIs should consult their financial advisor/tax consultant for any tax implications based on their country of residence.

• Tax implications

Premiums paid towards the policy are eligible for tax deductions under Section 80C of the Income Tax Act, and NRIs can claim tax benefits on their investment. 

However, tax rules and regulations vary depending on residency status. For example, an NRI investing in an Indian Life Insurance plan but considered a resident taxpayer by Indian law because of spending over 182 days per year in the country will be taxed according to Indian law.

Conversely, an NRI who is a resident taxpayer of another country where they earn their income must pay taxes only per that country's taxation laws. NRIs interested in purchasing life insurance need to review both Indian and non-Indian taxation laws before buying a policy to maximise their investment benefits and avoid any unnecessary penalties.

• Compliance With FEMA regulations

FEMA regulations require NRIs to report their policy purchases to the Reserve Bank of India and comply with proper reporting of premiums and payouts. Non-compliance can cause penalties and fines. Working with a reputable insurance company can help ensure smooth adherence to FEMA guidelines. 

• Receiving policy payouts

NRIs have two options for receiving payouts: in India or their country of residence. If they choose India, applicable procedures must be followed. If they opt for their country of residence, there could be additional charges due to exchange rate fluctuations or tax regulations. Comparing both options before ensuring hassle-free financial support for loved ones is essential.

Conclusion

Life insurance is an essential financial planning tool for NRIs to future-proof their India-based dependents. NRIs can identify plans that match their unique lifestyles by evaluating diverse products on parameters like coverage adequacy, premium affordability, liquidity needs, and tax efficiency. 

Leveraging insurers with specialised NRI offerings, simplified purchase channels, and void-free claims servicing accelerates securing families’ interests. Appropriate customisation also aids in efficiently concentrating payout benefits towards loved ones in case of any adversities.  Secure your future today by investing in the right life insurance policy as an NRI.

Frequently Asked Questions

Here’s a list of common questions and answers related to understanding the process related to buying life insurance in India for an NRI.

Can NRIs purchase life insurance policies in their home country?

NRIs can purchase life insurance policies in their home country by visiting the insurer's office or online website/app. However, they must ensure the policy complies with their current country of residence's laws and regulations.

Are there any special requirements for NRIs seeking life insurance policies?

Some insurers may require additional documentation from NRIs, such as proof of identity, proof of overseas address, and residency status, to establish eligibility for coverage.

What are the benefits of purchasing a life insurance policy as an NRI?

A comprehensive life insurance policy offers financial security for your loved ones in case of your untimely death or an accident. It can also help build wealth over time with added investment options bundled within some policies.

How can I choose the right life insurance product as an NRI?

When choosing a suitable life insurance plan, consider factors such as premium affordability, policy coverage term duration, and possible optional riders available alongside it. Look out for plans offering high returns on investment and reasonable premiums!

What types of life insurance policies are suitable for NRIs?

Some suitable policy types include term insurance, whole life, and endowment plans based on coverage needs, savings goals, and risk profiles.

How can an NRI purchase a life insurance policy online?

NRIs can buy policies on insurer websites by submitting online applications, uploading e-KYC documents, and making premium payments digitally without visiting India.  

What additional benefits do riders provide in NRI life insurance plans? 

Riders offer additional covers for critical illnesses, disability, accidents, and premium waivers as per individual NRI’s lifestyle risks.

How is the premium for an NRI life insurance policy calculated?

Premiums are based on entry age, policy tenure, sum assured, health/lifestyle declarations, foreign residence risks, and optional riders chosen.

Can the premium payment mode be customised in NRI life insurance? 

Yes, premiums can be paid yearly, half-yearly, quarterly, or monthly in suitable currencies based on NRI salary credits.

Is a medical check-up required for an NRI to buy life insurance?   

Basic plans may only need declarations, but higher covers above 50 lakhs or for aged citizens may require medical tests.

Can policy servicing requests be made digitally for NRI life plans?

Insurers are enhancing online portals for aspects like premium payments, document uploads, and nominee changes to be performed digitally.

Do NRI insurance plans offer guaranteed returns on maturity?

Only specific endowment or money-back plans provide guaranteed lumpsum payouts on maturity. Term plans cover only life risks.

Are death claim settlements quicker in ACKO term plans vs other insurers? 

Yes, ACKO Insurance prides itself on digitised claim processing and settlements within 1 week on average.  

Does tax apply to NRI policy maturity proceeds in India and foreign countries?

India-bought policies enjoy tax benefits on premiums, and maturity benefits may also be tax-free per treaty provisions.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.

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