What is Term insurance for NRI in India?

Non-resident Indians (NRIs) or Persons of Indian Origin (PIOs) are essentially the people staying abroad for certain time period and do not indicate an intention to stay there for an indefinite period will not be considered as NRIs5. These people live outside their home country, thereby making them non-residents of India. NRIs and PIOs may be residing abroad for any one of the many reasons. Some go abroad to pursue higher education, while others may be employed in foreign countries. The NRI population also includes spouses, parents, and children of people who may have left India to be employed abroad.

As an increasing number of people continue to seek employment overseas or set their sights on international universities, the population of NRIs only continues to rise⁶.

If you fall under the category of non-resident Indians, it’s likely that at some point, you may have considered parking your funds in the investment options offered by Indian companies. Of the many investments available to choose from, term insurance for NRI in India could be one of the most fundamental options.

How Do Term Insurance Plans for NRI work?

A term insurance plan for NRIs works on the same lines as a plan for resident Indians but there are some small differences. Let’s understand how the plan works for NRIs.

NRIs can choose the term plan that they want to buy. Then, they choose the following details –

1. The sum assured

2. The policy term

3. The premium paying term

4. The premium paying frequency

5. Available optional riders if they want added protection

Usually, NRIs have to undergo a pre-entrance health check-up when buying a term insurance policy¹. They can take this health check-up in the country of their residence or in India. In the former case, the NRIs usually bear the check-up cost. However, if they take the examination in India, the insurer may bear the cost.

Based on the medical reports, the insurance policy is underwritten and issued. The coverage runs for the chosen tenure. If the NRI dies during the tenure, the death benefit is paid. On the other hand, if the plan matures, no benefit is paid. However, if the NRI buys term insurance in India with a return of the premium option, the premiums would be refunded on the maturity of the plan.

Features of Term Insurance For NRI In India

Some of the salient features of the term plan that NRIs can take note of are as follows –

1. Term plans offer sufficient sum assured to choose a coverage that matches one’s financial needs.

2. Like resident Indians, NRIs too can enjoy coverage till 99 or 100 years of age if they choose a term plan which offers the whole life coverage option.

3. Some term plans also come with add-on riders. NRIs can buy these riders at an additional nominal premium, to enjoy added protection.

4. Many term plans offer flexible premium payment modes. Thus, NRIs too can pay a single premium, pay the premium for a limited tenure or pay it throughout the policy tenure.

5. Commonly found premium payment frequencies include monthly, quarterly, half-yearly and annual premiums.

Benefits of Term Life Insurance For NRI

Some of the benefits of term insurance for NRI in India are as follows –

1. Affordable coverage

Term plans are low-cost plans which offer good protection at affordable premiums. Moreover, NRIs can pay the premium in different modes and frequencies. This makes it easy for them to get covered against the risk of premature demise at affordable rates, as compared to buying the same in another country.

2. Financial security by opting for a term policy for NRI

Term plans are designed to provide financial security to the insured and his family. If the NRI passes away prematurely, the death benefit from a term plan can help their loved ones take care of the financial loss and manage their expenses and goals.

3. Tax benefits

Lastly, NRI term insurance plans also provide tax benefits. Here’s how –

• Premiums paid for term plans are allowed as a deduction from their taxable income. They can claim a deduction of an amount up to Rs.1.5 lakhs u/s 80C of the Income Tax Act. The same is available only under old regime of Tax. The deduction is available on premiums up to 10% of the sum assured if the policy is taken on or after 1st April 2012. For policies issued before this date, the deduction can be claimed on premiums up to 20% of the sum assured. However, if the insured is disabled or suffers a disease defined under Section 80U or 80DDB, the deduction can be claimed on premiums up to 15% of the sum assured if the policy is taken on or after 1st April 2013².
• The death benefit is tax-free3 even for term insurance for NRI in India.
• In return for premium (ROP) plans, the maturity benefit is also tax-free if the annual aggregate premium paid is up to Rs. 5 lakhs for insurance policies (Other than ULIP, annuity & pension policies) issued on or after 1st April 20234. For such ROP policy, gain from policy on maturity will be taxable in the hands of recipient. For policies issued prior to 1 April 2023, the maturity benefit would be considered to be tax-free under Section 10(10D)⁴.

So, Can NRIs Buy Term Insurance from An Indian Company?

To put it simply, yes. NRIs and PIOs are permitted to invest in term insurance plans offered by insurance providers based in India. The Foreign Exchange Management Act (FEMA) allows this transaction without any reservations. Save for a few minor changes, the process involved in purchasing term insurance is nearly similar for both residents and non-residents.

What Is the Procedure To Be Followed By NRIs looking To Buy Term Insurance Plans In India?

If you’re an NRI who wants to buy term insurance from the Indian market, the first thing you need to look into is the procedure involved. Typically, NRIs seeking to purchase insurance plans in India can opt for any one of these two strategies.

Purchasing A Term Plan When in India

If you, like most NRIs, make a trip back to the home country at least once a year, it can be an excellent opportunity to invest in a term plan during that time without any added hassle. If you purchase a term plan on one of your trips to India, the procedure is quite similar to what’s followed if a resident Indian makes a purchase. Here’s a quick look at how it may play out.

• You approach the insurer directly or through an agent and apply for investing in the term plan of your choice.
• The insurer evaluates your case and may ask for a medical history, if required.
• The insurance company will also consider the country you reside in and, if they offer insurance services for residents of that country, will accept your proposal to invest in their term plan.
• You’ll be required to pay premium charges as per the terms of the policy you’ve chosen.

Purchasing A Term Plan Abroad

If you may not be heading back home in the near future, or if you’re keen on investing in a term plan as soon as possible, you can make a purchase from your country of residence. This can be particularly useful if you have family back in your home country, since it’s easier for your beneficiaries to raise a claim in the unfortunate event of your demise if the insurer is based in India. On the other hand, if your insurance provider is based in your country of residence abroad, your family may find the formalities involved difficult and long-drawn.

Typically, the purchase of a term plan from an Indian insurer is done through an online medium. It could be from a web aggregator or a life insurance company’s website directly. It also requires an in-depth verification conducted either by a notary, an official of the Indian embassy, or an Indian diplomat. If you’re an NRI student, your dean or supervisor can conduct the verification.

Also, in this case, if the Indian insurance company requires that you undergo a medical examination before purchasing a term plan, you’ll need to comply. The medical reports can be mailed to the insurer after you invest in the insurance policy.

What Documents Do NRIs Require to Purchase Term Insurance Plans In India?

Document submission is one of the key steps involved in the application for and purchase of term insurance plans. An NRI who wishes to buy a term plan from an Indian company will be required to submit a set of essential documents that will help the insurer evaluate the case and process the application. While the exact list of credentials needed may vary from one insurer to another, here are some of the most common documents that an insurer will ask you to submit.

• An attested copy of your passport
• The application or proposal form, duly filled in
• Proofs of your identity, age, and address
• Proofs of your income and earnings
• Medical reports following a health check-up at the time of application

In addition to this, you’ll also be required to pay the insurer a sum of money that is equivalent to the first instalment of premium, as specified in the terms of the policy you choose.

How Can NRIS Pay the Premium Costs Associated with Their Term Insurance Plans?

When you purchase a term insurance plan from an Indian insurance company, you’ll need to choose a premium payment mode to keep your policy active. You can either opt to pay a lump sum amount as a single premium, or you can decide to pay premium periodically depending on the option available on that product. Most insurers allow you to pay premiums on a monthly, quarterly, semi-annual, or on an annual basis.

Now, if you’re an NRI, how do you go about paying premium to an insurance company based in India? The best way to go about this is by making payments online. Here are some of your options.

• You can remit the premium to the insurer in the foreign currency used in your country of residence. This can be done by using your Amex, Visa or MasterCard credit or debit card.
• You can pay the premium to the insurance company using your non-resident ordinary (NRO) bank account.
• Whatever the mode of payment chosen, keep in mind that it’s imperative to pay your premiums on time.

What Are Some Important Things To Know About Term Plans Issued To NRIS?

1. The significance of your country of residence

Your country of residence plays an important role in determining if you’re eligible for a term plan from an Indian insurer. Many insurance service providers have a list of countries in which their services are not available. So, before you opt for a term plan in India, verify if the insurance service provider you’re considering offers their services in your country of residence. Some insurers may refrain from offering you a cover if the country you’re in is considered to be a high-risk area.

2. The term of the insurance policy

The term of the insurance policy is the period from when the policy has been purchased till maturity or expiry. With regard to term insurance plans, the options related to the tenure of the policy are the same as those available to resident Indians. Customers can choose term plans with different policy term/premium payment term combinations. Premium term can be up to 30 years or whole life depending on the product chosen. Your age at the time of purchase determines the term of your insurance policy in case of a whole life term plan. Also, insurance companies have a minimum and a maximum cap on the ages at which you can purchase a plan.

3. The extent of protective life cover offered

Term insurance plans are pure protective policies that offer a life cover to the insured. This means that in case the policyholder passes away before the policy expires, the insurer pays out death benefits to their nominee/beneficiaries. These term insurance benefits are in the form of a lump sum amount, known as the sum assured. Your life cover needs to be adequate to get your family through financial troubles in the unfortunate event of your demise.

4. The premiums charged on term insurance for NRIs

The premiums charged by the insurer depend on a number of factors. Some of these factors are listed here.

• The term of the insurance policy
• The life cover taken under the term plan
• The frequency of premium payment
• The presence of any additional riders over and above the basic plan

Are There Any Other Obligations of NRIs Purchasing Term Plans In India?

While you’re free to purchase term plans from insurance providers in India as an NRI, it’s essential that you remain aware of the obligations associated with this investment.

1. Obligation to provide proof of medical history or status

It may not be mandatory to offer details about your medical condition or health status. However, if your insurer requires that you submit relevant proof, you need to comply with that request. In some cases, insurance companies based in India also go the extra mile and conduct tele-medical examinations for their NRI clientele. Also, if you suffer from any pre-existing health issue, you’re obligated to let your insurer know of it before you purchase a term insurance plan. Hiding vital information may invalidate your insurance cover.

2. Obligation to pay taxes

Under term plan, if any insurance death claim is paid to nominee of policy holder, same will be exempt u/s 10(10D)* of Income Tax Act, 1961.

^* subject to policy is not “Key-man policy” as per Income Tax Act

What Happens If You Become an NRI After Purchasing A Term Plan?

It’s entirely possible that when you first purchase your term plan, you may be considered a resident Indian, but a few years later, if you move abroad for a job or other reasons, you may become an NRI. In this case, you may wonder if your term plan continues to remain valid. This depends on your insurance service provider.

If you’re moving abroad for the foreseeable future, you’re required to let your insurer know in writing that you’re going to settle in a foreign country. Depending on the place you’re moving to, your term plan may remain unchanged, or may be modified as the insurer sees fit. If your new country of residence does not fall under the insurer’s risk profile, your term plan may become invalid in that country. So, remember to notify your insurer before you move abroad.

Conclusion

Given these comprehensive details, it’s evident that NRIs can easily buy term insurance from insurance companies based in India. By opting for this kind of life cover, your family back home in India will find that it’s easier to raise a claim to the insurance company in the event of your death. It also proves convenient if you decide to return to India later in life.

FAQs

1. What is the minimum and maximum entry age for buying term insurance for NRI in India?

The minimum and maximum age depends on the policy that the NRI chooses to buy. For instance, the Bajaj Allianz Smart Protection Plan allows individuals aged between 18 and 65 years to buy the policy. However, if you choose the Return of Premium option and the Pay till 60 Option, the minimum entry age is 25 years and the maximum is 55 years.

2. Can NRIs choose the policy tenure for their term insurance plan?

Yes, NRIs can choose the policy tenure for their term insurance plan. However, the term should be within the minimum and maximum term allowed by the policy. For instance, the Bajaj Allianz Smart Protection Goal allows a minimum term starting from 10 years and going up to (99 entry-age) years depending on the coverage you choose.

Sources

1. https://business.outlookindia.com/news/can-non-resident-indians-nris-buy-term-insurance-in-india--news-243781

2. https://incometaxindia.gov.in/tutorials/20.%20tax%20benefits%20due%20to%20health%20insurance.pdf

3. https://www.livemint.com/money/personal-finance/how-life-insurance-policies-are-taxed-11665145664260.html

4. https://economictimes.indiatimes.com/wealth/tax/how-to-buy-life-insurance-to-maximise-tax-free-maturity-amount-after-cbdts-new-curbs/articleshow/103005822.cms?from=mdr

5. https://www.ifinltd.in/NRI/Who-is-an-NRI

6. a.https://www.ndtv.com/india-news/record-surge-in-illegal-us-entries-nearly-97-000-indians-apprehended-in-2022-23-as-overseas-indian-population-tops-3-crore-unpacking-nri-and-pio-globa-4553099

b.https://en.wikipedia.org/wiki/Indian_diaspora#:~:text=According%20to%20a%20Ministry%20of,of%20migrants%20in%20the%20world

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