Life insurance tax benefits for NRIs

Through the compensation received from the policy, the family members can pay off debts, cover day-to-day expenses and cope with the policyholder's loss.

Some policies offer retirement planning, like Endowment Policy and Whole Life Insurance. Such policies offer profitable returns through regular bonuses and investments. They contribute towards providing a stable recurring income post-retirement.

The Income Tax Act of 1961 introduced multiple benefits, such as premium deductions and tax exemptions on policy maturity or a death benefit. Moreover, the Double Taxation Avoidance Agreement (DTAA) can help NRIs avoid paying taxes on the same income in India and their country of residence.

Passing on a fortune from generation to generation could often be challenging. Life Insurance policies could be practical estate planning tools for NRIs. Also Read: Life insurance Estate planning.

By investing in LI policies in India, NRIs can diversify their financial portfolios by holding assets in Indian Rupees (INR). It mitigates the risks associated with currency rate fluctuation. Moreover, financial investment diversification is always advisable. 

The age limit for buying a LI policy in India depends on the type of policy and the insurance company. Generally, the minimum age requirement is 18, and the maximum limit ranges between 60 and 75 years. 

Insurance companies generally have a stringent document verification process. The documents demanded may include the following.

• Passport: A copy of the NRI applicant's passport is mandatory. The passport includes essential details such as a permanent address, personal information, and visa.
• Address proof: An address proof must provide proof of residence in the residing country. A rental agreement or a utility bill could serve as proof of address. 
• Proof of income: An income proof document is mandatory for NRI applicants. Valid income proofs include salary slips, income tax returns, or bank statements. The evidence of income is used to determine whether the applicant is financially capable of paying the premium. 
• PAN Card: Every applicant must submit a copy of the PAN Card issued by the Indian government. 
• Photographs: Recent passport-size photographs are necessary.
• Proposal form: Every applicant must submit a signed proposal form that provides personal information, health, family history, and other relevant information.

Term insurance is a pure risk cover policy that offers financial protection to the policyholder's family in the event of their unexpected death during the policy term. These policies provide high coverage at relatively low premium rates. Term insurance suits NRIs seeking affordable, straightforward life coverage without any investment component.

Whole Life Insurance policies cover the policyholder's lifetime, typically up to 100 years. Apart from offering death benefits, these policies also have a savings component that accumulates cash value over time. Whole Life Insurance is ideal for NRIs seeking long-term financial protection and wealth accumulation.

Here, a portion of the premium is allocated towards life coverage, while the remaining is invested in financial instruments, allowing policyholders to build a corpus over time. Endowment policies are suitable for NRIs seeking a combination of risk cover and savings for specific financial goals, such as retirement planning or children's education.

ULIPs offer a mix of LI coverage and investment in market-linked instruments, such as equity and debt funds. Policyholders can choose their preferred investment options based on risk appetite and financial objectives. ULIPs provide the flexibility to switch between funds and offer the potential for higher returns. They are an appropriate choice for NRIs with a long-term investment horizon and a higher risk tolerance.

An NRI's ability to receive life insurance tax advantages largely depends on their residential status. Tax rules distinguish residents, non-residents, and non-resident Indians in several nations, including India. Under Section 80C of the Income Tax Act, NRIs may generally be eligible for tax benefits on life insurance premiums paid in India, subject to specific requirements.

The kind of life insurance policy and its goals may also affect the tax advantages available to non-resident Indians. Term insurance policies usually qualify for tax benefits on premium payments because they offer pure risk coverage without any savings or investment component.

Tax treaties between India and other nations might influence the way life insurance payouts are treated tax-wise for non-resident Indians. These agreements seek to prevent double taxation and specify criteria for identifying which nation has the principal authority to tax particular income, such as insurance earnings.

NREs and NROs are explicitly designed for NRIs to manage their finances. Through these bank accounts, NRIs can easily transact with Indian bank accounts in INR.

An FCNR account is a foreign bank account owned by an NRI. NRIs can pay their premium in foreign currency through these accounts.

NRIs can also pay their premiums through bank transfers directly to the insurance company. These transactions must, however, comply with regulatory guidelines and foreign exchange regulations

Yes, NRIs who hold a foreign nationality can purchase Indian life insurance provided they meet the eligibility criteria.

If an NRI returns to India permanently, their LI policy will remain valid, and they can enjoy the benefits and coverage offered.

There are no specific restrictions on the sum assured for NRIs purchasing life insurance policies in India.

Section 80C of the Income Tax Act of 1961 allows for a tax exemption on all life insurance policies. 

Under Section 10(10D) of the Income Tax Act, death benefits obtained by beneficiaries of non-resident individuals are generally tax-free in India as long as the premiums paid do not surpass a specific proportion of the amount guaranteed.

Depending on their unique features and conditions, various life insurance policy types, such as whole life insurance, unit-linked insurance plans (ULIPs), and term insurance, provide tax benefits for non-resident individuals.

The life insurance policy issued by Indian insurance companies to non-resident Indians (NRIs) covers them anywhere in the world in the event of their death.