How to choose life insurance as an NRI? Factors to consider?

Choosing life insurance as an NRI requires considering factors like policy eligibility, premium payment options, currency regulations, tax benefits, and claim settlement processes. Opt for a policy that covers global risks, allows flexible premium payments, and offers tax advantages in both your resident and home country. Compare providers with strong financial stability and seamless online services for easy management.

What you’ll learn in this article:

• Key factors NRIs should consider before buying life insurance.
• Tax benefits and premium payment options for NRIs.
• Best life insurance policies for non-resident Indians.

Excerpt of How to Choose Life Insurance as an NRI

For Non-Resident Indians (NRIs), life insurance is crucial for securing financial stability and protecting loved ones back home. However, choosing the right policy involves understanding eligibility, premium payment modes, tax benefits, and international claim processing. With multiple options available, selecting a provider that offers worldwide coverage, flexible premium payments, and efficient claim settlement is essential.

Life insurance is an important financial instrument for protecting the future of loved ones. Non-resident Indians (NRIs) must carefully evaluate several variables before selecting the best life insurance policy in India. 

The insurance market has several possibilities, but NRIs must ensure that the coverage meets their needs, financial objectives, and legal requirements. 

Here’s a step-by-step guide to selecting the best life insurance for NRIs.

Key factors to consider when choosing life insurance as an NRI

1) Eligibility for NRIs

It is advisable to check if you are an NRI before purchasing a life insurance policy from the insurer. An Indian living abroad but possessing an Indian passport is regarded by most of the insurance providers in India as an NRI. 

Individuals of Indian descent holding foreign citizenship though they have ties to India are also covered by some insurers under the category of Persons of Indian Origin (PIOs). It is also possible for Overseas Citizens of India (OCIs) who have an OCI card that bestows them rights akin to an NRI. This helps verify these details as different insurers have different eligibility criteria for the application.

2) Type of life insurance policy

There are several life insurance options available to NRIs depending upon their financial goals and risk appetite. The most cost-effective of them is Term Insurance which provides pure life coverage and is for the financial security of dependants, in the unfortunate event of the policyholder’s death. Whole Life Insurance provides lifetime coverage with cash value accumulating over time which makes it a great long-term investment. 

Endowment Plans have savings with insurance, which means they give you a lump sum at maturity and provide death benefits. On the other hand, Unit Linked Insurance Plans (ULIPs) are investment tools that come with life coverage and give policyholders a chance to grow wealth to secure the family’s future. The right policy type to select is determined by one’s financial planning needs.

3. Premium payment flexibility

Life insurance policies that allow for flexible premium payments are a good idea for NRIs. NRE/NRO accounts are most of the insurers that accept payment in Indian Rupees (INR) and some of the insurers accept payments in foreign currencies like USD, GBP, or AED through international payment gateways. In India, many policies also provide auto debit, online payment facilities and representative-based payments for the convenience of the policyholder. A policy with multiple payment modes is chosen by the customer to avoid transaction hassles, especially for NRIs who are constantly on the move between countries.

4. Tax benefits under Indian laws

Life insurance policy is permitted as a tax benefit under the Indian Income Tax Act for NRIs. Premiums paid towards life insurance policies are eligible for deductions under Section 80C, but the limit is up to ₹1.5 lakh per year. 

Moreover, the maturity and the death benefits are income tax-free under Section 10(10D) on the fulfilment of certain conditions. However, it is also important to check the tax implication in the country of residence as some countries would tax foreign life insurance payouts. Knowledge of these factors can help NRIs make better financial planning.

5. Repatriation of maturity benefits

NRIs need to check the repatriation rules if they want to transfer the insurance proceeds abroad. The repatriation of maturity benefits is under FEMA (Foreign Exchange Management Act), based on the source of premium payments. The policies funded through NRE accounts are generally allowed full repatriation while NRO account-funded policies are not allowed full repatriation. 

The maturity benefits of NRIs should be transferred to the resident country only if the above-mentioned conditions are fulfilled by NRI and he should also verify with his insurer before doing so to avoid any problem in the process.

6. Regulatory compliance (FEMA and IRDAI Rules)

NRIs must ensure that their life insurance policy adheres to FEMA (Foreign Exchange Management Act) guidelines and IRDAI (Insurance Regulatory and Development Authority of India) regulations. 

The rules for financial transactions, repatriation of the fund and taxation for NRIs are defined. It is important to review this legal aspect before you buy a policy because non-compliance result in fund transfer restriction or tax liabilities.

7. Rider benefits for enhanced protection

To be financially secure, NRIs can go for further riders along with their base life insurance policy. Accidental Death Benefit and Critical Illness Rider are included in these, which is an extra payout should the policyholder pass away inadvertently, and a lump sum if the policyholder is diagnosed with a severe illness. 

Some other useful riders include the Waiver of Premium Rider which waives the future premium payment in case of disability or critical illness and the Disability Cover which pays financial assistance if the person becomes permanently disabled. At a very small additional cost, these riders provide greater financial protection.

8. Premium payment term vs. policy term

There are several premium payment options for NRI. It is the regular Pay which demands ongoing payments throughout the policy period. With Limited Pay, premiums are paid for a short duration (e.g., 10 years) while the policy is still active for a longer period (e.g., 30 years). 

Single pay means a single payment to cover the life of the person insured. Income stability and financial preferences determine whether you choose the right structure.

9. Ease of policy purchase and documentation

Many insurers allow NRIs to make policy purchases online with minimal documentation. However, it may be necessary for some of these policies to have a physical presence in India, attestation at the Indian consulates abroad, or a local contact person to complete the process. 

To avoid any complications that may arise during the process of purchasing life insurance, NRIs would do well to check what documentation is required beforehand.

10. Claim process and settlement time

Timely financial support to the nominee is crucial and this is possible through a seamless claim settlement process. One should settle for insurers who pay claims within 30 days of submission. Some insurers offer online claim filing and tracking facilities that make the process convenient. 

Also, NRI should educate his or her nominees about the procedure of claim so that no delay takes place in the payment of payouts.

Conclusion

When choosing the correct life insurance for NRIs, several things must be considered, including eligibility, policy type, tax advantages, claim settlement ratio, and repatriation laws. Understanding FEMA and IRDAI criteria assures legal compliance, whilst picking the appropriate sum assured, riders, and premium payment alternatives aids in the financial security of dependents. 

Well-chosen insurance gives family members peace of mind by providing long-term safety and financial stability, safeguarding their security even in the policyholder’s absence.