Living as an NRI brings a whirlwind of experiences, from diving into new cultures to carving out a fulfilling career or pursuing higher education. Whether you're miles away from home or even closer to family, ensuring their security is always your top priority. This is where term insurance serves as a robust safety net that provides for your family in case of unforeseen events. If you pass away while the policy is active, the insurance company will pay a sum of money to your family, known as the 'sum assured.' This amount replaces your income, ensuring that your family's financial needs are met without compromising their dreams and lifestyle.
The claim payout option you choose while buying the policy determines how your family will receive this money. Term insurance is a pure risk cover, meaning it pays benefits only if you pass away during the policy duration. If you survive till the end of the policy, no benefits are paid.
In this article, we'll explore everything you should know about buying term insurance in India as an NRI.
First, Should You Consider Buying Term Insurance As An NRI?
You might want to explore the option of a term insurance policy if -
👉You're the sole breadwinner in your family, responsible for supporting financial dependents who rely on your income for their livelihood.
👉You've invested in Indian properties and carry loans against them. In such cases, a term insurance claim can empower your family to manage short-term needs and pursue long-term goals more confidently.
👉You have outstanding loans or liabilities. In such cases, the claim proceeds can be utilised to settle those obligations, providing your family with a more stable financial footing.
Now, let’s delve into the essential considerations for NRIs in India when it comes to term life insurance.
What NRIs In India Need To Understand About Term Insurance?
Before jumping into term life insurance in India, NRIs should grasp a myriad of important considerations. Let’s discuss them below -
👉Necessary Documents
When purchasing a term insurance plan in India as an NRI, you'll need to provide the following documents to the insurance company -
- Duly filled application form
- Medical tests and reports
- Income proof papers
- Age proof certificate
- Any other documents requested by the insurer
- Attested copy of passport
👉Premium Payment Options
Insurance providers in India offer various convenient premium payment options for term insurance policies designed specifically for non-resident Indians (NRIs). These include:
- Non-resident ordinary nature account (NRO)
- Foreign currency non-repatriable account (FCNR)
- Non-resident external bank account (NRE)
An important thing to note here is that NRIs need to verify the currency in which the policy has been issued. If the term insurance policy is issued in a foreign currency, premiums must be paid from an NRE/FCNR account in that respective currency. Conversely, if the policy is issued in Indian rupees, premiums should be settled through an NRO account.
👉Payout Of Term Insurance Plan
Similar to premium payments, benefits from term insurance policies are disbursed in the currency specified in the policy document, either in rupees or foreign currency. Just as in any regular insurance deal, NRIs or their nominees must follow the policy guidelines and submit the necessary documents to get their claim payments.
When it comes to making a claim, the insurer typically asks for the original policy document, the nominee's ID, and the death certificate of the insured individual, among other essentials. It's worth noting that if the unfortunate event occurs in a foreign land, the insurer will demand a death certificate endorsed by the Indian embassy or High Commission of that country. However, if the tragedy unfolds within India's borders, no such attestation is required.
👉Tax Implications
In the event of an NRI's demise while the plan is active, most insurance companies will transfer the claim to an NRE (Non-resident External) account. However, it's essential to note that the country of residence of the NRI may impose taxes on these proceeds. Therefore, it's crucial for the NRI to inform their nominee to verify the tax implications of the proceeds. Additionally, NRIs filing taxes in India can enjoy tax benefits on both term insurance premiums and claim amounts under the Income Tax Act of India, 1961-
- Term insurance premiums are eligible for tax deduction under section 80C, allowing NRIs to claim a maximum deduction of up to Rs 1,50,000.
- Moreover, the term insurance claim amount received by the nominee in the event of the NRI's demise during the policy term will be entirely tax-free under section 10 (10D).
👉Global Coverage
Term insurance purchased in India provides coverage for death occurring anywhere globally, with the exception of suicide in the first year of the policy. If suicide occurs in the first year, the insurer refunds the premium to the nominee. Regardless of where you pass away, whether it's in Singapore, Canada, or any other country, if you've purchased a policy in India, your family will still receive the claim. This means you can rest assured that your family will receive financial protection, regardless of any geographical barriers.
👉Protection Under Section 45
As per Section 45 of the Insurance Act 1938, insurers are not allowed to investigate or reject death claims on any grounds after three years of continuous policy coverage. While it's uncertain if such a law exists in other countries, this aspect makes term insurance in India a highly appealing investment choice. It provides a guaranteed payout to the family of NRIs, provided the NRI's death occurs after three years of continuous policy coverage within the policy term period.
Wrapping Up!
Term insurance in India acts as a shield for NRIs, assuring their families' financial well-being during unexpected events. If you are an NRI, you should weigh your need for term insurance, especially if you’re the main earner of your family or have financial obligations in India. Understanding the documentation requirements, premium payment options, tax implications, global coverage benefits, etc., is key when dealing with term insurance. This knowledge is essential for making wise choices and securing your loved ones' future no matter where you are.
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