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When Should an NRI Buy Life Insurance in India

TeamAckoNov 2, 2023

NRIs or Non-resident Indians are individuals who are citizens of India but are residing abroad for various reasons, such as employment, education, or personal reasons. NRIs can benefit from life insurance as it can provide financial security to the family members in the event of an unexpected death of the policyholder. In this article, we will explore why and when should an NRI consider purchasing life insurance in India.

NRI Buy Life Insurance in India

Contents

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In which situations should an NRI consider buying life insurance in India?

NRIs should consider buying life insurance (LI) in India in the following situations.

  • If they have financial dependents in India, such as parents, spouse, or children, who would be affected financially in the event of the NRI's untimely death. 

  • If they plan to return to India in the future or have significant assets in India. 

It is important for NRIs to work with a professional financial advisor or insurance agent to assess their specific needs and determine the best life insurance policy for them. They should also ensure that they understand the terms and conditions of the policy, including the premium payment options, coverage amount, and maturity and death benefit payouts.

Why should NRIs consider opting for life insurance in India?

NRIs should consider buying life insurance in India for several reasons. Here are some of the most important ones.

  • Financial security for dependents

The death benefit paid by the insurance company can help your loved ones cover their daily expenses, pay off outstanding debts, and fulfil their long-term financial goals.

  • Lower premiums

Life insurance premiums in India are generally lower than those in other countries, such as the US or the UK. As an NRI, you can take advantage of these lower premiums and get a higher coverage amount for the same premium amount.

  • Currency fluctuations

As an NRI, you are likely to have financial obligations and investments in both 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.

  • Investment option

Some life insurance policies in India, such as Unit-linked Insurance Plans (ULIPs), offer both life insurance coverage and investment options. You can choose to invest in equity, debt, or balanced funds, depending on your risk appetite and investment goals.

Types of life insurance policies for NRIs

NRIs can purchase different types of life insurance policies in India. Let's take a closer look at each of these types of policies.

  • Term Insurance

 Term Insurance is a pure life insurance policy that offers a high coverage amount at an affordable premium. It provides financial security to your family in case of your untimely death during the policy term.

  • Endowment plans

Endowment plans are a combination of life insurance and savings. They offer a guaranteed sum assured along with a bonus or profit share, which is declared by the insurance company at the end of the policy term.

  • Money-back policies

Money-back policies offer periodic payouts during the policy term, in addition to the death benefit. These payouts can help you meet your financial goals, such as paying for your child's education or funding your retirement.

  • Unit-linked Insurance Plans (ULIPs)

ULIPs are a type of life insurance policy that offer both life insurance coverage and investment options. A portion of your premium is allocated towards LI, and the rest is invested in equity, debt, or balanced funds, in accordance with your investment goals and the amount of risk you are willing to take.

Benefits of buying life insurance in India for NRIs

Buying life insurance in India can be beneficial to NRIs in several ways.

  • Ensuring financial security: Life insurance provides financial security to the policyholder's family in the event of the policyholder's untimely death. This can be particularly important for NRIs who have financial dependents in India, such as parents, spouse, or children.

  • Tax benefits: NRIs who purchase LI in India can benefit from tax deductions on the premiums paid under Section 80C of the Income Tax Act, 1961. The maturity and death proceeds are also tax-free for NRIs, subject to certain conditions.

  • Low premiums: Life insurance premiums in India are relatively low compared to those in many other countries. NRIs can take advantage of the lower premiums to secure a higher sum assured for their family's financial protection.

  • Flexible payment options: NRIs can choose to pay their LI premiums in foreign currency through their NRE/NRO/FCNR accounts, providing them with a convenient and hassle-free payment option.

  • High returns: Some life insurance policies in India offer high returns on investment. NRIs can benefit from the higher returns, particularly if they plan to repatriate their funds at a later stage.

  • Diversification of investment portfolio: Investing in LI in India can diversify an NRI's investment portfolio, particularly if they have a significant exposure to investments in their country of residence.

  • Access to insurance products: NRIs can access a range of life insurance products in India that may not be available in their country of residence. This provides them with a broader range of options to choose from and to tailor their life insurance policy to their specific needs.

Factors to consider when buying life insurance as an NRI

When buying life insurance in India as an NRI, there are several factors to consider. Here are some of the most important ones.

  • Age and life stage: Your age and life stage play a crucial role 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, spouse, 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 to undergo a medical check-up before purchasing a life insurance policy.

  • Duration of stay abroad: If you plan to return to India in the near future, 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 need to consider the payment options available to you, 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.

Documentation requirements to buy life insurance in India as an NRI

Buying life insurance in India as an NRI involves fulfilling certain documentation requirements. The following are the typical documents that an NRI needs to provide to purchase life insurance in India.

  1. NRIs need to provide a copy of their passport as proof of identity.

  2. NRIs need to provide a copy of their overseas address proof, such as a driving licence, bank statement, or utility bill. In some cases, an NRI may also be required to provide a local reference in India.

  3. NRIs need to provide a copy of their income tax returns as proof of income.

  4. Some insurers may require an NRI to undergo a medical examination to determine their health status before issuing a policy. This requirement may vary depending on the age and sum assured of the policy.

  5. NRIs need to provide a Foreign Account Tax Compliance Act declaration to comply with the US government's tax regulations.

It is essential for NRIs to ensure that they provide accurate and complete documentation to avoid any delays or rejections in their application process. Additionally, NRIs should check with their insurer about any specific documentation requirements that may be applicable to their policy type or premium payment mode.It is also worth noting that some insurers may offer a simplified documentation process for NRIs based on their country of residence or policy type. In such cases, the documentation requirements may be reduced to provide a more convenient and efficient application process.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. The maturity and death proceeds of an NRI life insurance policy 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.

Frequently Asked Questions 

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

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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 for NRIs to buy 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. 

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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