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Term Insurance Plan for NRI

TeamAckoMay 13, 2024

Term Insurance is a type of life insurance that compensates the family members or nominees if the policyholder's demise occurs within the policy period. Such a policy is quite helpful for the financial security of the family. Yes, NRIs (Non-Resident Indians) can buy term insurance in India. However, choosing the correct term insurance policy for NRI is critical to guarantee cross-border financial security and stability. 

This article explores the complexities of non-resident individual term insurance plans, examining their nature, functions, varieties, and potential investors. Read ahead to learn everything about Term Insurance for NRIs.

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Contents

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PROS

CONS

Financial Security:  Provides dependents with the necessary financial safety.

Not an Asset:  There is no investment component nor a monetary value.

Cost-effective:  Reasonable premiums, particularly for younger people.

Strict Terms:  If the insured lives out the term, premiums are forfeited.

Flexibility:  Adjustable policy terms and alternatives.

Payment Termination Scope:  If premiums are not paid, coverage is terminated.

Tax Benefits:  Generally, death benefits are tax-free.

Rise in Expense:  When a premium is renewed or converted, it could go up.

What is Term Insurance for NRI?

For everyone, life insurance is vital. Protecting your loved ones when you're away, whether you live in India or elsewhere, is imperative. For NRIs, term insurance is very crucial because, should you pass away, your family may find it difficult to support themselves while living abroad. Your family can move to India, take care of their necessities while they're away, find possibilities for a comfortable existence, and much more with the money they receive while you're gone.

A term plan gives your family an extra layer of crucial financial security. It can assist them in getting the money they need to meet their financial obligations and aspirations under challenging times. Term plans play a significant role in the financial portfolios of NRIs, Overseas Citizenship of India (OCIs), and Persons of Indian Origin (PIOs). 

Let’s understand term insurance for NRI’s with an example: 

30-year-old Arjun wishes to safeguard his loved ones in the improbable event that he passes away too soon. He pays ₹ 50 a month for a 10-year, ₹ 5,00,000 term life insurance policy.

  • Arjun's beneficiary will receive ₹ 5,00,000 from the policy if he passes away within ten years. 

  • There won't be any payout to his beneficiary if he passes away after the policy's expiration.

  • The premiums will be more than for his first coverage if he lives and renews it after ten years because they will be based on his current age of forty instead of thirty (premiums based on age).

  • When the initial insurance term ends and renewability, Arjun most likely won't be able to renew it if he receives a terminal illness diagnosis. 

Understanding how Term Insurance works For NRIs

Term insurance for NRIs also works like regular insurance. 

  • The policyholder must pay a fixed premium for assured coverage for the selected period. If the policyholder dies in this period, the nominee gets the sum assured amount. 

  • NRIs also have the option of Return of Premium (ROP). This option allows them to recover the total premium payments when the policy matures if the policyholder survives the policy period. They can also supplement the policy with add-ons for improved coverage.

Types of Term Insurance for NRIs

Term life insurance for NRIs typically has similar policies available to residents. Four types of term insurance policies:

  1. Renewable Term

  2. Convertible Term

  3. Decreasing Term

  4. Adjustable Premium

Renewable Term

A word used to describe a provision in many term life insurance contracts that permits renewal without requiring fresh underwriting is "renewable term." With a renewable term policy, the insured's health can deteriorate, but the renewed premiums will represent their advanced age.

Convertible Term 

As long as the policyholder continues to pay the insurance payment, convertible insurance enables the policy owner to convert a term policy that only covers the insured individual for a certain number of years into an endless policy.

Decreasing Term 

A term life policy with a decreasing death benefit is known as decreasing term life insurance. It's advantageous if you anticipate that your loved ones will require less financial assistance over time.

Adjustable Premium

With adjustable life insurance, you can modify the policy's terms after enrolling, such as the premium amount and the death benefit. Known also as universal life insurance, adjustable life policies have a "cash value" account, a savings component that accrues interest, that you can use while living. 

 value" account, a savings component that accrues interest, that you can use while living. 

How to Buy Term Insurance For NRIs?

For the protection of their family, an NRI can purchase a pure term plan, which provides comprehensive life cover protection, a death payout, and no maturity advantages. Buying term insurance is as easy for an NRI as for an Indian resident in India.

NRIs can apply for term insurance in two ways:

  • From within the country (India)

In India, it is relatively easy to purchase an insurance policy; you can do it online from your smartphone! As an NRI, you should follow the regular procedure as an Indian citizen, but you must mention your country of residence to the insurer while providing your details. Choose an insurance company, select your preferred policy, submit the form with the required details/documents, and start paying the premiums mentioned. 

Please note that Term Insurance may not be valid for NRIs residing in specific countries, such as politically unstable ones. Check the same with your insurance provider before purchasing the policy.

  • From their resident country

The process to obtain Term Insurance from a foreign country is elaborate. You need to purchase the policy through Mail Order Business. A notary, an Indian diplomat, and/or an Indian Embassy official must verify your identity for application. If you are a student, your college head or supervisor can assist you with the verification.

Features of NRI Term plans

Here are some interesting features of NRI Term Insurance.

  • Customisable amounts

Different people have different financial requirements, and term insurance in India allows NRIs to decide on policy coverage based on this. Your cover may be as low as a few lakh rupees or increase to crores. It is entirely your decision, and some insurance companies do not pose any limits to the maximum amount insured.

  • Wide choice of policy term

Anyone between the age of 18 and 65 years can opt for Term Insurance (TI). Most insurance companies in India offer Term Insurance for NRIs. The term options of these policies can begin at six months and go up to 25 years. You can choose the term period that suits you best.

  • Quick documentation

Applying for TI is relatively easy if all your documents are in place. NRIs should provide their passport copy, age and income proofs, and medical history records. Your insurer will determine the premium accordingly.

  • Easy payments

Premiums can be easily paid online through Internet banking. NRIs can use foreign remittance or NRO, NRE or FCNR accounts for the same. The frequency of paying the premium is as per their choice. Generally, annual payments are the most convenient and beneficial.

2 Key Factors to Consider Buying an NRI Term Insurance

The following factors should be considered before buying an NRI Term Insurance plan. 

  • Policy tenure: NRIs must put a lot of thought into the policy duration when buying term insurance. It can be as low as six months and extend to 40 years. Experts advise having coverage for at least until you turn 65 years old. Usually, your age should fall between 18 to 55 or 65 years, depending on the insurance company's requirements. 

  • Policy coverage: You must also decide the policy amount wisely for the insurance policy. It is vital to make an informed decision because the amount you choose must be adequate for your family in case they lose you. Consider factors like debts, inflation, education expenses, and significant events like marriage or childbirth to choose the appropriate amount and type of policy. Choosing an escalated policy amount will secure your family against rising inflation. You can also go for a policy that automatically increases the sum insured by a specific rate every few years.

Additional Riders Available for NRI Term Insurance 

Some common riders that are available for term insurance are:

  1. Accidental Death Benefit Rider: It improves your loved ones' financial security by guaranteeing an additional amount in the event of an accident-related death.

  2. Critical Illness Rider: This helps compensate for medical costs and lost wages while recovering by providing a lump sum payment upon diagnosis of certain serious diseases.

  3. Waiver of Premium Rider on Disability: This rider guarantees that future premium payments will be waived in case of accidental disability, job loss, etc. The policy remains active for the rest of its term. This ensures continued coverage for the insured and their beneficiaries without the burden of premium payments. 

  4. Terminal Illness Rider: When a terminal disease is diagnosed, the Terminal Disease Rider accelerates a portion of the death benefit, enabling you to pay for medical expenditures and fulfil your final wishes.

Choosing the Right Term Insurance for NRIs in India

One of the most important things you can do as an NRI in terms of financial management is to get yourself a term insurance policy. Term insurance is a crucial component of your emergency plan that provides financial stability for your family. As a non-resident Indian, purchasing a term plan is comparable to buying the plan as a resident. However, you do have further options to secure the cover. There are a few things to think about while choosing and purchasing term life insurance:

  1. Claim Settlement Ratio: Verify the insurer's claim settlement ratio to ensure a greater chance of hassle-free claim settlement and a sign of dependability.

  2. Online Presence: Choose insurers with a strong internet presence for simple access to customer service, convenient policy management, and premium payments.

  3. Claim Settlement Process: Examine the insurer's claim settlement procedure to see if it is efficient, clear, and trouble-free to ensure a more seamless claims process.

  4. Persistency Ratio of the Company: Assess the insurance company's persistency ratio to determine policy retention rates and customer satisfaction, as these metrics indicate the business's reliability.

  5. Payment Options: To fit your convenience and financial choices, look for insurers that offer various payment options, including annual, monthly, quarterly, or half-yearly premiums.

Factors Affecting Term Insurance Premiums for NRIs

The main factors that impact the Term insurance premium are:

  1. Age: Since younger people are viewed as less hazardous to insure, their premiums are typically cheaper. Premiums typically rise because of a greater chance of health problems. 

  2. Health: A major factor in deciding premiums is your medical history and current state of health. Healthy NRIs can get cheaper premiums; individuals with pre-existing ailments, on the other hand, might pay more or be excluded from coverage.

  3. Lifestyle: Due to the higher risk involved, certain lifestyle decisions, such as smoking, drinking, or participating in risky activities, may result in higher premiums.

  4. Occupation: Your occupation can affect insurance rates. People in high-risk professions might pay greater premiums than NRIs in low-risk occupations.

  5. Features of the Policy: Although they can raise premiums, extra riders and features like critical illness or accidental death benefit riders offer more benefits and protection.

Documents Required for NRIs to Purchase Term Insurance

NRIs need the following documents to apply for Term Insurance.

  • Completed insurance policy application form

  • Passport copy of the applicant (Both front and back)

  • Proof of residence

  • Copy of valid visa

  • Bank statements for the past six months

  • Medical records as needed

  • Foreign Account Tax Compliance Act (FACTA) form

  • Income proof

  • Proof of age 

  • Employment ID

  • Salary slips for the past three months

  • Photographs of the applicant

Is Term Insurance in India better for NRIs than international plans?

NRIS should buy Term Insurance in India rather than abroad for the following reasons.

  • Option of numerous insurers: India has many insurers enlisted with the IRDAI that provide various types of Term Insurance for NRIs. These offer high coverage at reasonable premiums.

  • Online medical checkups: Organising an online medical checkup for NRIs from their foreign residence is now possible. It makes it easy to buy Term Plans from India, their home country.

  • Special exit option: Under this feature, an NRI can exit from the policy anytime without losing any of the premiums paid. You are exempt from paying any additional fee and will be reimbursed for all the premiums paid until then.

  • Concession on GST: NRIs can save up to 23% on their premium amount. You are eligible for a special 18% GST waiver if you buy Term Insurance from India. You should make the premium payment via your NRE account in Indian currency. Again, you are qualified for a 5% premium discount if you pay it annually.

  • Economical premiums: Compared to policies purchased abroad, those bought in India are more economical. The premium amount is much lower because it is paid in Indian rupees. Internationally, since it is paid in foreign currency, the premium turns out to be quite expensive.

Eligibility to Buy Term Insurance for NRI

The eligibility requirements for term insurance as an NRI (non-resident Indian) vary based on the insurance company and its policy. However, here are some standard eligibility criteria.

Age: You must typically be between 18 and 65 to be eligible as an NRI.

Residency: You must have a valid NRI status and reside in a country on the insurance company's approved list of countries.

Medical history: You must provide information about your medical history, including any pre-existing conditions and medications you take.

Occupation: Some insurance companies may restrict specific work profiles, such as those considered high-risk.

Premium payment: You will need to make premium payments in the currency specified by the insurance company, which may require you to have a bank account.

Documentation: You must provide certain documents, such as your passport, visa, and proof of residency, as well as any additional documentation required by the insurance company.

It's important to note that the eligibility requirements vary widely between insurance providers, so it's always a good idea to check with the specific provider to determine their needs for purchasing Term Insurance as an NRI.

Frequently Asked Questions

Below are some of the frequently asked questions on Term Insurance Plan for NRI

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As an NRI, can I buy a Term Insurance plan in India?

Yes, you can buy Term Insurance in India as an NRI. Ensure that the policy you choose covers your country of residence. You may need to get approval in writing from the insurer.

Can I buy multiple Term Insurance plans?

Yes, buying many Term Insurance plans for greater financial security of your family members is possible.

Can the frequency of premium payments be changed after purchasing the policy?

Usually, it is possible to change the frequency of paying premiums. But you may need to wait until the next premium is due to make the change. Also, each policy may differ in its regulations, so read the policy terms carefully.

What will be the outcome if I move abroad after buying the policy?

If you have already bought Term Insurance and then are moving abroad, you can inform your insurer and get the policy information changed accordingly. Your plan will remain active and continue as it is. Furthermore, remember to notify the country name where you will reside. If there are any contradictions, your insurer will let you know.

What happens to the policy if an NRI fails to pay the Term Insurance premium on time?

If you fail to pay the premium within the stipulated period, the insurer gives a grace period within which you can pay it. If you still do not pay it, the policy will lapse or be void. Generally, for a premium to be paid half-yearly or annually, you get a grace period of 15 days.

Who is not eligible for Term Insurance?

Usually, anyone below the age of 18 years or above 65 years cannot opt for Term Insurance. However, in some other cases, individuals may not be eligible for it. Please check with your insurance advisor for details regarding the same.

Does India allow NRIs to purchase term insurance? 

In India, NRIs can get term insurance. Many insurance companies offer NRIs term insurance policies tailored to their needs, enabling them to safeguard their family's finances from anywhere in the world. 

Do NRIs have any limitations when it comes to term insurance? 

In general, NRIs can purchase term insurance in India without restrictions. However, they might have to adhere to rules established by the Insurance Regulatory and Development Authority of India (IRDAI) and complete specific documentation criteria.

What effects does term insurance have on an NRI's taxes? 

Subject to certain limitations, NRIs may be able to deduct their term insurance premiums from their taxes under Section 80C of the Income Tax Act. Furthermore, the funds from the death benefit received by the nominee are mostly tax-free if the premiums are within the limit. 

Can riders be availed of term insurance policies for NRIs? 

Yes, NRIs can normally purchase riders with their term insurance plans. Based on the insurance company's provisions, these plans offer extra coverage benefits, including critical sickness, accidental death, premium waivers, and more. 

How may NRIs get term insurance policies and pay the premiums? 

It is easier for NRIs to manage their term insurance plans from overseas by allowing them to pay premiums using various channels, including online payment platforms, NRE/NRO accounts, and foreign currency remittances.

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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