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When Should an NRI Buy Life Insurance in India

TeamAckoDec 10, 2024

NRIs or Non-resident Indians are citizens of India but reside abroad for various reasons, such as employment, education, or personal reasons. Life Insurance for NRIs can provide essential financial security for family members in the event of an unexpected death of the policyholder. With NRI Life Insurance options available, NRIs can ensure their loved ones in India are financially safeguarded.

This article will explore why and when an NRI should consider purchasing NRI life insurance in India. Additionally, you'll learn the benefits of Term Insurance in India for NRIs, including repairability of funds and selecting the best Term Insurance plan for NRIs to meet financial goals and family security needs.

NRI

Contents

What is NRI Life Insurance?
When to Look for Life Insurance for NRIs
How Does NRI Life Insurance Work?
Key Life Events When NRIs Should Consider Buying Life Insurance in India
Factors to Consider When Buying Life Insurance as an NRI
5 Documentation Needed to Buy Life Insurance in India as an NRI
Modes of Premium Payment Available for NRIs
- NRE (Non-Resident External) and NRO (Non-Resident Ordinary) Accounts:
- FCNR (Foreign Currency Non-Resident) Accounts:
Table of Comparison Between the Various Modes of Premium Payment Available for NRIs
Rules Regarding Maturity and Death Proceeds in Case of NRI Life Insurance in India
Conclusion
Frequently Asked Questions

What is NRI Life Insurance?

NRI Life Insurance refers to plans custom-built by insurance providers to serve the distinct coverage needs and lifestyles of non-resident Indians residing abroad for work, education or settlement purposes. These policies offer tailored features, foreign currency premium payments, and higher covers, realising the amplified risk exposures faced by globally mobile Indians.

Let’s learn about NRI Life Insurance for NRIs with an example:

Maya is a 25-year-old engineer based in Germany on an EU Blue Card. She wants to purchase a Term Insurance plan in India for NRIs policy to financially secure her parents and younger sister, who live in Mumbai, given that she is now their sole breadwinner.

NRI Life Insurance offers twin advantages for NRIs like Maya living overseas: it provides monetary aid to Indian nominees in case of unexpected events and facilitates systematic long-term financial savings. Maya invests in an NRI Term Insurance plan, one of the best Term Insurance plans for NRIs, allowing her to remit Euro premiums easily from her German bank account every quarter. On survival at maturity after 25 years or in the unfortunate case of any incident before that, her designated India-based appointees can initiate claim processing to avail the assured amount.

When to Look for Life Insurance for NRIs

Here are some key situations when NRIs should consider buying Life Insurance in India:

Starting a Career Overseas: When an NRI begins working abroad, purchasing NRI Life Insurance early on can lock in lower premiums and provide a financial safety net for family members back in India.
Having Financial Dependents in India: If an NRI has dependents in India, such as parents, a spouse, or children, Life Insurance for NRIs can ensure their financial security in case of unexpected events.
Major Life Events : During significant life changes like marriage, buying a home, or having children, NRIs should consider NRI Term Insurance to safeguard their growing responsibilities.
Estate Planning Needs: NRIs looking to protect and transfer wealth should consider Term Insurance in India for NRIs as part of their estate planning strategy. It can help create a legacy for loved ones in India, along with potential tax benefits.
Long-Term Financial Goals: For NRIs with a long-term financial plan, NRI Life Insurance can serve as both a protection tool and a savings vehicle, ensuring they achieve their future goals with systematic financial discipline.
Desire for Repatriable Benefits: Many NRI Life Insurance policies offer repatriability of benefits, allowing the policyholder or their beneficiaries to transfer funds back to their country of residence, which can be an attractive feature for globally mobile individuals.
Investment Diversification: For NRIs looking to diversify their investments, the best Term Insurance plan for NRIs in India can offer both risk coverage and potential for asset growth, especially when foreign currency premiums and high coverage limits are involved.

How Does NRI Life Insurance Work?

Let’s understand how does the Life Insurance for NRIs work in India:

Specified in the policy: NRI Life Insurance plans operate similarly to regular policies in terms of coverage and payouts, but they come with unique features tailored for NRIs.
Premium Payment Flexibility: Life Insurance premiums in India are generally lower than those in other countries, such as the US or the UK. NRIs can pay premiums in multiple currencies—USD, GBP, Euros, AUD, or INR—allowing alignment with foreign income. Payments can be made from NRE/NRO accounts, making Term Insurance in India for NRIs easy and accessible.
Ownership Structures: Some Life Insurance for NRIs may allow the policyholder to assign ownership to a trusted family member in India, such as a parent, spouse, or sibling. This native nominee can handle paperwork and claims processing while the NRI retains payor responsibilities.
Customisation Options: NRIs can tailor NRI Term Insurance to meet unique risks, including additional rider covers and extended tenures. This allows the best Term Insurance plans for NRIs to address specific needs related to travel, high-risk professions, or health issues.
Claims Process and Repatriability: In case of a claim, beneficiaries can submit documents digitally or in person.
Investment option: Some Life Insurance policies in India, such as Unit-linked Insurance Plans (ULIPs), offer Life Insurance coverage and investment options. Depending on your risk appetite and investment goals, you can choose to invest in equity, debt, or balanced funds.
Currency fluctuations: As an NRI, you are likely to have financial obligations and investments in India and your country of residence. Life Insurance in India can help you manage your finances across borders and protect your loved ones from currency fluctuations.

NRI Life Insurance plans provide robust flexibility, security, and ease of management, catering to the specific needs of NRIs and their families.

Key Life Events When NRIs Should Consider Buying Life Insurance in India

NRIs should consider buying Life Insurance (LI) in India in the following situations.

Starting a Family Overseas

Becoming parents is a happy turning point that immediately warrants evaluating if existing insurance adequately secures the child's future in case of parental loss. Buying suitable covers creates an earmarked corpus for education, weddings, and other milestones.

Getting Married

Entering matrimony leads to added liabilities like home loans with a partner. Ensuring the spouse enables repaying such debts through policy proceeds upon the loss of the spouse. This maintains the stability of the bereaved household, including the care needs of young kids.

Purchasing Property Assets

Investing in Indian homes or land with financing necessitates purchasing covers that redeem such mortgages. This facilitates the smooth transfer of property ownership rights to legal heirs if something affects the overseas breadwinner.

Onset of Critical Illnesses

Advancing age increases the probability of diseases; hence, covering oneself and one's parents for conditions like cancer and heart attacks via adequate insurance becomes a prudent requirement at the right time.

Loss of Existing Income Source

The unexpected demise of a key earning family member leading to income uncertainty means buying extra protection to enable continuity of household needs through insurance proceeds.

Factors to Consider When Buying Life Insurance as an NRI

Several factors must be considered when buying Life Insurance in India as an NRI. Here are some of the most important ones.

Age and life stage

Your age and life stage are crucial in determining the type and amount of LI coverage you need. If you are young and single, you may not need a large coverage amount, but if you have dependents, you may need a higher coverage amount to provide for their financial needs.

Dependents and financial obligations

If you have financial dependents in India, such as parents, spouses, or children, you may need to consider a higher coverage amount. You should also factor in any outstanding debts or loans that you may have in India.

Health and medical history

Your health and medical history can affect your eligibility for Life Insurance and the premium amount you need to pay. You may need a medical checkup before purchasing a Life Insurance policy.

Duration of stay abroad

If you plan to return to India shortly, you may want to consider a policy that allows you to continue your coverage even after you return. Some policies offer international coverage, while others require you to be physically present in India to claim the death benefit.

Premium payments and benefits

As an NRI, you must consider payment options, such as online payment, wire transfer, or NRE/NRO accounts. You should also understand the benefits offered by the policy, such as the death benefit, maturity benefit, and surrender value.

Tax benefits

You should also consider the tax benefits offered by the policy, such as the deduction available under Section 80C and the tax-free nature of the death benefit under Section 10(10D) of the Income Tax Act, 1961.

5 Documentation Needed to Buy Life Insurance in India as an NRI

As a non-resident Indian (NRI) wanting to purchase Life Insurance coverage in India, having the proper documents handy simplifies the application process and enables insurers to validate your details seamlessly. The key documents needed include:

Identity proof: Submit a copy of your valid passport proving your Indian citizenship and overseas residential status.
Age proof: Have age verification documents available, e.g., birth certificate, school leaving certificate, or passport pages stating the date of birth to assist insurers in determining accurate premiums aligning age.
Address proofs: Currently, NRI provides a copy of overseas residential proof like a utility bill alongside Indian address proof like an Aadhar card copy or voter ID, which may serve as local communication.
Financial statements: Since insurers consider income levels assessing coverage feasibility, copies of the latest bank statements, income tax returns, Form 16, and income proof help get suitable quotes.
Medical reports: Based on the insurance amount sought, standard or comprehensive medical checkup records may be requested to assess health status declarations truthfully. Keep prescription slips, health history documents, and preexisting illness records handy.

Also read: Essential documents required for NRI Life Insurance in India

Modes of Premium Payment Available for NRIs

Before exploring the different modes of premium payment available for NRIs, it will be helpful to understand the concepts of NRE, NRO and FCNR accounts.

NRE (Non-Resident External) and NRO (Non-Resident Ordinary) Accounts:

Both NRE and NRO accounts are the types of bank accounts that NRIs can use to manage their finances in India. NRE accounts are used to park overseas earnings in India in a rupee-denominated account, while NRO accounts are used to manage income earned in India.

Paying premiums through an NRE account is generally the most convenient option, as it allows NRIs to repatriate their funds fully and the account is tax-free. However, there may be charges for remitting the funds to India, and the exchange rate may fluctuate, affecting the actual premium paid. NRO accounts can also be used to pay insurance premiums, but only partially repatriable funds can be used for this purpose. Additionally, the income earned from the policy is taxable in India, and remittance charges may apply.

FCNR (Foreign Currency Non-Resident) Accounts:

FCNR accounts, on the other hand, are term deposit accounts that NRIs can use to deposit and maintain their foreign currency earnings in India. These accounts are denominated in foreign currency and are meant to protect NRIs from currency fluctuations.

FCNR accounts can be used to pay insurance premiums in foreign currency, but only for policies purchased in foreign currency. The account is fully repatriable and tax-free, but the minimum deposit and tenure may vary from bank to bank.

Table of Comparison Between the Various Modes of Premium Payment Available for NRIs

PAYMENT MODE	NRE ACCOUNT	NRO ACCOUNT	FCNR ACCOUNT
Allowed by Insurance Companies	Yes	Yes	Yes
Currency	INR	INR	Foreign Currency
Repatriability	Fully Repatriable	Partially Repatriable	Fully Repatriable
Taxability	Tax-free	Taxable in India	Tax-free
Exchange Rate	Prevailing rate on date of payment	Prevailing rate on date of payment	Prevailing rate on date of payment
Remittance Charges	May be applicable	May be applicable	May be applicable
Minimum Deposit	Varies by bank	Varies by bank	Varies by bank

Rules Regarding Maturity and Death Proceeds in Case of NRI Life Insurance in India

The maturity and death proceeds of an NRI Life Insurance policy in India are subject to certain rules and regulations. The following are the key points that NRIs need to keep in mind regarding maturity and death proceeds.

Maturity proceeds : When an NRI's LI policy in India matures, the policyholder is entitled to receive the maturity amount (as applicable), which is the sum assured plus any bonuses or other benefits. The maturity proceeds are generally paid out in Indian Rupees and credited to the NRE/NRO/FCNR account of the policyholder.
Taxation of maturity proceeds: Maturity proceeds from life LI in India are tax-free for NRIs as long as the premiums are paid in foreign currency and the policy is held for a minimum of two years. If the policy is held for less than two years, the maturity proceeds are taxable in India.
Death proceeds: In the event of the policyholder's death, the nominee or legal heir is entitled to receive the death proceeds, which is the sum assured plus any bonuses or other benefits. The death proceeds are generally paid out in Indian Rupees and credited to the NRE/NRO/FCNR account of the nominee or legal heir.
Taxation of death proceeds: Death proceeds from LI policies in India are tax-free for NRIs, regardless of the tenure of the policy or the currency of premium payment.
Repatriability of proceeds: Repatriability refers to the ability to transfer funds or assets from a foreign country back to the country of origin. In the context of NRIs and Life Insurance in India, repatriability is an important factor to consider when deciding on a policy. An NRI Life Insurance policy's maturity and death proceeds in India are fully repatriable as long as the premiums are paid in foreign currency. However, if the premiums are paid in Indian Rupees, the repatriation of the proceeds may be subject to certain restrictions.
Exchange rate fluctuations: NRIs should keep in mind that exchange rate fluctuations may affect the actual amount received in their foreign bank account. The exchange rate prevailing on the date of payment of the maturity or death proceeds will be applicable.
Inheritance laws: Inheritance laws may vary depending on the country of residence of the policyholder and the laws of India. NRIs should consult with a legal expert to understand the inheritance laws applicable to them.

Conclusion

Life Insurance allows NRIs to implement comprehensive financial safeguards for Indian families regardless of geographical distance. Evaluating needs during major life stages and purchasing suitable covers promises risk mitigation alongside wealth creation, tax efficiency, emergency access to funds if required, and seamless legacy planning. Hence, proactive financial inclusion through adequate insurance future-proofs native relationships despite global mobility barriers.

Frequently Asked Questions

Below are some of the frequently asked questions on NRI Buy Life Insurance in India

Which type of NRIs should buy Life Insurance in India?

NRIs who have financial dependents in India, plan to return to India in the future, or have significant assets in India should consider purchasing Life Insurance in India.

What are the key advantages of NRIs buying life insurance in India?

Life Insurance provides financial security to the policyholder's family in the event of the policyholder's untimely death and can offer tax benefits, low premiums, flexible payment options, higher returns, and diversification of the investment portfolio.

Should an NRI consult a financial advisor regarding purchasing a Life Insurance policy in India?

Usually, all relevant information is published on the insurer’s website and an informed decision can be made after going through the same. However, consulting financial advisors can prove helpful due to tax implications and other accounting-related matters related to NRIs.

What kinds of Life Insurance plans are specially designed for NRIs?

Insurers offer customised Term Insurance, endowment plans, and whole life plans for NRIs, which conveniently factor in higher-risk lifestyles, overseas residency statuses, and multi-currency payment flexibility through NRE/NRO accounts.

What is the ideal coverage amount for an NRI?

Ideal coverage considers income, loans, family size, inflation, retirement costs and other factors. Typically, for sole breadwinners, a term plan of Rs.1-2 Cr provides adequate financial backup for the family.

Which documents are needed for the NRI Life Insurance application?

Identity/age proofs, address documents showcasing NRI status, financial statements, specialty visa certificates if applicable and medical test reports need furnishing based on policy type and insurer chosen.

Are preexisting illness-related claims covered for NRIs?

Usually, the first 2 years have waiting periods for declared preexisting diseases. After that, critical illness covers payout claims subject to proper disclosure. Hence, transparency about health status is advised.

How soon is an NRI death claim usually settled?

Once documentation is submitted, verified claim disbursals take 1-2 weeks after factoring in NRI status, provided policy obligations were met, including medical disclosures.

Can I assign my NRI policy ownership to parents in India?

Yes, by registering an Indian nominee, aspects like future paperwork and claims processing get conveniently managed by the India-based appointee, although premium dues fall on the NRI proposer.

Do NRI insurance plans allow alterations later?

Unlike corporate plans, some insurers offer flexibility to modify covers, premium payment modes, and tenure length in response to life stage needs, even post-policy issuance.

Is a medical checkup mandatory for NRI Life Insurance buying?

Yes, NRI plans require medical tests beyond a certain cover amount threshold, as insurers assess health risks before approving coverage.

How can insurance help NRIs manage inheritance smoothly?

Well-drafted nominee declarations and appointee assignments allow policy proceeds to get transmitted easily to intended heirs through local asset management services, bypassing legal complexities.

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.