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When should an NRI increase their Life Insurance sum assured?

TeamAckoJul 14, 2024

Life insurance is a critical component of financial planning, providing peace of mind to policyholders and their loved ones. As an NRI, you may have purchased a life insurance policy to safeguard your family's financial condition in case of your unexpected demise. However, your life insurance needs may also change as your circumstances change. One crucial aspect to consider is whether your life insurance sum assured is sufficient to meet your dependents' needs.

This article will look into situations where an NRI can consider increasing the sum assured.

NRI

Contents

What is the Sum Assured in Life Insurance for NRIs?
When should the sum assured in life insurance be increased?
Steps to increase the sum assured for NRIs
4 Popular Types of NRI Life Insurance Policies
How to Buy NRI Life Insurance Policies?
Additional Riders Available
Choosing the Right Life Insurance Plan for NRIs
Factors Affecting Life Insurance Plans for NRIs
Wrapping Up
Frequently Asked Questions

What is the Sum Assured in Life Insurance for NRIs?

In NRI life insurance, the term 'Sum Assured' represents the maximum amount an insurance company pays upon death or maturity of the policy. It helps beneficiaries with ongoing financial obligations like mortgages and daily living expenses.

In determining an appropriate sum assured, one must consider factors such as income, spending habits, and existing debts; NRIs should regularly review their policies. This practice allows them to maintain adequate coverage in the face of changing circumstances - a crucial step towards safeguarding the well-being of their families while optimising tax benefits.

Let's take a look at an example:

Mr Yash is a 35-year-old NRI who opted for a life insurance policy with a sum assured of Rs 1 crore. It implies that when the policyholder dies, the insurance company must pay out Rs 1 crore to the nominee mentioned in the policy. The policy also includes an increasing sum assured feature, where the death benefit increases by 5% annually.

In this case, the sum assured would grow as follows:

Year 1: Rs.10,500,000

Year 2: Rs.11,025,000

Year 3: Rs.11,576,250 and so on.

If the policyholder were to pass away during the policy, their nominee would receive the increased final sum assured as the death benefit, which is higher than the initial sum of Rs 1 crore.

When should the sum assured in life insurance be increased?

NRIs should consider increasing their sum assured because of various reasons, such as changes in lifestyle and health conditions, increase in income and assets, approaching retirement age, rise in inflation and healthcare costs, growing family size, pre-existing health conditions, or critical illnesses of self or a family member. Let’s explore these situations in detail.

1. Changes In Lifestyle And Health Conditions

NRIs must regularly evaluate the impact of lifestyle changes and health conditions on their Life Insurance policies. This assessment is crucial as it affects the type and extent of coverage needed. Lifestyle changes such as moving to a different country or adopting new habits can directly impact their health.

Another factor is ageing; it can cause unforeseen medical complications, causing more extensive care than initially planned. Pre-existing critical illnesses require enhanced coverage for financial protection against high healthcare costs outside India.

Milestones such as marriage or childbirth must also be considered when increasing the sum assured to ensure ample support for dependents, even after retirement. Regular evaluation is crucial to make suitable modifications concerning premium payments and adequate risk coverage through life insurance policies tailored to changing personal circumstances.

2. Increase in income and assets

As NRIs continue to earn more income and accumulate assets over time, evaluating and adjusting their Life Insurance coverage is crucial. With increasing costs of living and healthcare expenses, having a higher sum assured can provide more comprehensive protection.

For example, if you've recently acquired new assets or properties, adjusting your coverage can ensure they're adequately protected in unforeseen circumstances. Similarly, if your income has significantly increased due to career advancements or investments, upgrading your policy can help mitigate potential risks.

It's important to note that even minor adjustments to the sum assured can significantly benefit financial protection against unexpected events. Regularly discussing updates with your insurance provider based on significant changes can help prevent being underinsured when you need financial help.

3. Approaching retirement age

Regularly reviewing their Life Insurance policies is essential for NRIs approaching retirement age to ensure adequate coverage. As people age, medical conditions may become more prevalent, increasing healthcare costs. Therefore, increasing the sum assured could be necessary to meet these expenses. Apart from this, NRIs may have different financial obligations and responsibilities, which may require additional coverage. One option could be investing in Pension Plans that provide regular income during retirement when there's no steady income.

It's also crucial to remember that if the premium amount for a life insurance policy was paid entirely from an NRO (Non-Resident Ordinary) account using Indian currency, the proceeds might not be transferable. Therefore, it's essential to consult with an insurance provider or agent about any changes in policy wording or tax benefits when nearing retirement age. This will ensure that NRIs are well-prepared for their retirement years with adequate coverage and financial security.

4. Rise in inflation and healthcare costs

NRIs must consider inflation when increasing their sum assured for Life Insurance plans. Without adequate coverage, medical expenses can cause financial strain on families. Higher coverage can provide tax benefits and avoid out-of-pocket expenses during emergencies. Insurance companies offer bonuses and discounts for regular policy renewals. Sufficient coverage also helps with critical illnesses and provides financial protection for dependents. A large assured life insurance policy can offer support during terminal illness or death.

5. Growing family size

As NRIs' families grow, financial obligations also increase. This includes children's education, housing, food, clothing, and medical expenses. Insufficient coverage could cause significant financial strain. Regularly reviewing policies and adjusting the sum assured or opting for additional policies can secure your family's future.

6. Pre-existing health conditions

NRIs with pre-existing medical conditions like diabetes, hypertension, or heart disease should increase their health insurance sum assured to avoid the high costs of medical treatment. A higher sum assured will provide comprehensive coverage, protecting individuals and their families from unexpected events.

Disclosing updated medical information is essential to avoid claim rejections or delays. Opting for policies with shorter waiting periods or coverage for pre-existing illnesses from the outset is wise. Annual health check-ups can help manage current health status and maintain physical well-being while securing financial protection through appropriate coverage levels.

7. Critical illnesses or terminal illness of self or a family member

NRIs should consider increasing their sum assured for health insurance due to critical illness or terminal illness of self or family members. This can help ease the financial burden of expensive treatments like chemotherapy and surgery, costing lakhs or even crores of rupees. A higher sum assured ensures that your financial obligations are met without draining your savings. A critical illness rider can also provide lump-sum benefits to pay off debts and cover ongoing medical expenses. It's never too early to get adequate coverage and ensure financial stability.

Steps to increase the sum assured for NRIs

NRIs can increase their insurance coverage by contacting their provider or agent, updating their health information, paying additional premiums for increased coverage, and renewing policies annually. This ensures financial protection against healthcare costs and unforeseen emergencies.

Step 1: Contact your insurer

NRIs should contact their insurance provider or agent to increase their sum assured for health or life insurance based on changes in their lifestyle, income, and health conditions. Share updated health and medical information to assess needs accurately, pay an additional premium and renew annually. Review policy wordings carefully to understand coverage. This ensures adequate financial protection, avoiding stress over paying medical bills from overseas and affecting financial obligations back home.

Step 2: Provide updated health and medical information

To increase your Life Insurance sum assured, provide your insurer with updated health and medical information. Follow these tips.

Record your current and pre-existing medical conditions.
Report any new illnesses or injuries.
List any medications or past surgeries.
Share lifestyle changes that could affect your health.
Be transparent about hereditary illnesses in your family.
By providing accurate information, you ensure the sum assured is calculated based on your risk profile, providing better financial protection against future medical expenses.

Step 3: Pay Additional Premium For Increased Coverage

NRIs can increase their Life Insurance coverage by paying an additional premium. This ensures higher sums and better protection, especially for unexpected medical expenses. Paying an extra premium can also accumulate a cumulative bonus, which gets added to the base sum assured at renewal.

Step 4: Renew your policy upon expiry

The terms and conditions may vary between different insurance providers and policies. However, policy renewal is essential for NRIs to ensure continuous financial protection.

Here's why.

Policy updates can affect the benefits/exclusions of your plan.
Renewal helps you avail cumulative bonus benefits in many life insurance plans.
Renewing your health insurance plan ensures coverage for pre-existing medical conditions without a break.
Renewing policies ensure adequate risk coverage to meet financial obligations in case of critical or terminal illnesses.
Renewal helps keep up with changing healthcare costs and inflation rates.

4 Popular Types of NRI Life Insurance Policies

NRI Term Plans
Child Plans for NRITop of Form
NRI Retirement Plans
ULIPs for NRIs

NRI Term Plans

NRIs receive term life insurance policies that provide a death benefit similar to those available for resident Indians. These pure protection plans dictate the insurance company will pay out only if survival is not an option for the policyholder by the end of the term.

Child Plans for NRI

In the event of an unforeseen demise, NRIs can secure their children's future by purchasing child plans. Primarily designed to assist NRIs in saving for critical life goals of their children - such as higher studies - these life insurance plans offer additional benefits like waiver of future premiums upon the death of a parent who is also a policyholder.

NRI Retirement Plans

In India, insurers extend the opportunity to Non-Resident Indians (NRIs) for retirement plan investments that secure a monthly income post-retirement through annuity purchases. Such plans earmarked for NRIs facilitate enhanced retirement planning, thus ensuring financial security beyond their regular earning years after they have ceased employment upon reaching the retirement stage.

ULIPs for NRIs

Unit-linked insurance plans, or ULIPs, amalgamate the advantages of life insurance and investment into a single package; they represent a specific type of insurance policy. Non-resident Indian ULIPs operate under identical principles as those applicable to ULIPs for residents in India.

How to Buy NRI Life Insurance Policies?

Here are some key pointers on how to buy NRI life insurance policies:

Assess your life insurance needs based on income, liabilities, and dependents.
Research and compare insurance offered by Indian insurers and foreign insurers operating in your place of residency.
Review the insurer's trustworthiness, claim settlement ratio, and financial strength ratings.
Select the policy type: term, whole life, endowment, or unit-linked.
Provide correct personal and financial information during the application process.
Review the policy completely before paying the premium.
Update your nominee details and notify the insurer of any significant life changes.
Pay premiums on schedule to keep coverage current and prevent lapses.

Additional Riders Available

Some typical riders for term insurance include:

Accidental Death Benefit Rider: Provides additional financial protection for loved ones in case of an accident-related death.
Critical Illness Rider: Provides a lump sum payout to cover medical expenses and missed income during recovery for certain significant conditions.
Waiver of Premium Rider: This option waives future premium payments to ensure your life insurance continues to pay in case of severe illness or disability.

Choosing the Right Life Insurance Plan for NRIs

Choosing the right life insurance plan for NRIs involves several key considerations:

Coverage Options: Seek plans that cater to your international financial requirements by providing coverage in various currencies.
Documentation Process: Ensure the insurer provides an efficiently streamlined documentation process for NRIs, circumventing needless complications.
Premium Payment: Choose plans that facilitate ease of transactions by allowing premium payments in foreign currencies.
Currency Fluctuations: Consider implementing policies that hedge against currency fluctuations to safeguard the amount of your coverage. This action will serve as a protective measure in response to potential shifts in currency values.
Tax Implications: You should evaluate the tax implications in your country of residence and India, aiming to maximise the benefits of taxes.
Policy Flexibility: Choose plans with flexible options that accommodate changing needs and circumstances.
Customer Service: Give priority to insurers with dedicated customer service for NRIs. This will ensure prompt and efficient handling of any concerns.
Claim Settlement: Evaluate the convenience and effectiveness of the claim settlement process; this includes assessing how easily funds can be repatriated, where applicable.

Factors Affecting Life Insurance Plans for NRIs

The main factors that impact the NRI life insurance premium are:

Age: Younger individuals are considered less risky to insure. Therefore, their rates are often lower. Premiums often climb as the risk of health issues increases with age.
Health: Your medical history and current health status significantly impact premiums. Healthy NRIs can pay lower premiums for health insurance plans. However, those with pre-existing conditions may pay more or be denied coverage.
Lifestyle: Certain lifestyle choices, such as smoking, drinking, or engaging in dangerous activities, may result in higher premiums.
Occupation: Your occupation may impact insurance premiums. People working in high-risk professions may pay more rates than NRIs in low-risk employment.
Features of the Policy: Although they might increase rates, additional riders and features, such as critical sickness or accidental death benefit riders, provide greater benefits and protection.

Wrapping Up

India-based insurers offer various life insurance policies for non-resident Indians. An NRI's optimal life insurance policy provides wealth creation benefits and financial security to family members. You have the option to compare different policies designed explicitly for NRIs based on their premiums, CSR values, policy terms, assured sums, and offered benefits.

Frequently Asked Questions

Below are some of the frequently asked questions on NRI increase their Life Insurance sum assured

What is the recommended time to increase the sum assured for NRIs Life Insurance policies?

It is advisable to review your policy upon significant changes in your circumstances, such as marriage, childbirth, or any new diagnosis, which may affect your overall health status.

How does one determine the ideal sum assured?

The ideal sum assured amount depends on several factors, including age, medical history, lifestyle habits, and family’s medical history. Considering these factors when determining how much coverage you need before increasing it is essential.

Will I pay higher premiums if I increase my coverage?

Yes, increased coverage will lead to a corresponding rise in premium rates.

Do NRI Life Insurance policies command higher premiums than those intended for Indian residents?

NRI Life Insurance policies usually align their premiums with those of residents. However, suppose an NRI resides in a high-risk country with natural disasters or political instability, the premium may escalate to mirror this increased level of risk. Consequently, when you ascertain the Sum Insured for your NRI Life Insurance policy, it becomes crucial to incorporate these influential factors.

Can NRIs purchase joint Life Insurance policies with their spouse or family members?

NRIs retain the ability to procure joint Life Insurance policies with their spouse or other family members, whether they are NRIs or Indian residents.

When should NRIs change the sum assured of their life insurance policy?

NRIs can modify their life insurance policy based on income and pre-existing medical conditions.

Must I inform my insurer about the need to adjust the sum assured on the NRI life insurance plan?

Indeed, it would help if you informed your insurer about the necessary alterations to the sum assured of the NRI life insurance plan.

If I increase the sum assured of the NRI life insurance plan, must I pay a higher premium?

It would be best if you remitted a superior premium to escalate the sum assured of your NRI life insurance plan.

What’s the maximum coverage I can get for an Accidental Death Benefit rider?

As per the IRDAI, you can purchase an Accidental Death Benefit Rider with coverage up to three times (3x) the base sum assured of your life insurance policy.

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.