Simplifying Life Insurance in India
Can NRIs Buy Life Insurance Policy in India?
Life insurance policy is a vital financial tool that ensures the security and well-being of you and your loved ones. Recently, it has become essential for Non-resident Indians (NRIs) to purchase life insurance in India for various reasons. But why should NRIs consider investing in life insurance in India?
This article explains the importance, benefits, and process of purchasing life insurance for NRIs. It covers everything from securing your children’s education to supporting your ageing parents or even securing a financial cushion for yourself.
Table of Contents
What is NRI Life Insurance?
NRI life insurance is a tailored plan by insurance companies specifically for NRIs. It offers foreign currency premium payments, higher coverage, and the ability to accommodate risks faced worldwide by Indians.
With this insurance, NRIs can protect themselves and their family members.
Importance of Life Insurance for NRIs
For NRIs, buying life insurance in India has to be measured against alternatives abroad. It is crucial for NRIs due to the following reasons:
Financial Security for Family
Life insurance helps your family survive in the event of your unexpected death. It is crucial for NRIs as their family lives in India and will depend heavily on their income.
Peace of Mind
It’s important to know that your family will be financially stable without you, which helps you focus on achieving your professional and life goals elsewhere.
Meeting Financial Goals
NRIs can use life insurance to accomplish long-term financial goals, such as paying for education, retirement planning, or caring for elderly parents.
Risk Management
Life insurance helps to mitigate the risks associated with life abroad, including higher medical costs or legal problems.
Loan Facility
You can take out loans against your life insurance policy. It can be a convenient source of funds for emergencies, or major outlays like buying a house or paying for higher education.
Types of Life Insurance Policies Available to NRIs
For life insurance, NRIs in India have lots of options. Here are the main types:
Term Insurance
A term insurance policy offers protection for a defined period and pays the nominee an agreed-upon sum in case of the policyholder's death.
Whole Life Insurance
Whole life insurance provides lifetime coverage and guarantees timely payment for the policyholder’s family.
Endowment Plans
Endowment policies are insurance products that reward the policyholder or a nominee with a lump sum once they mature or upon the policyholder’s death.
Unit Linked Insurance Plans (ULIPs)
ULIPs are being designed and marketed as life insurance products that invest in equities or debt or exhibit qualities of both. Investment funds provide choices and chances of better returns due to market fluctuations.
Money Back Insurance Plans
Money back plans offer bonuses at regular points in the policy's term, with a sum assured on death.
Child Insurance Plans
A child insurance plan is an investment product in which the parent makes regular payments towards his or her child’s future requirements, like education. The policy offers life coverage.
Retirement Insurance Plans
Retirement insurance plans aim to help NRIs accumulate funds for their post-retirement years and, in the process, obtain life coverage.
Critical Illness Insurance
Critical illness insurance is a type of insurance policy that pays out a tax-free cash sum if the policyholder is diagnosed with a specified critical illness, which helps to pay for medical expenses and anything else.
Benefits of Purchasing Life Insurance in India
1. Affordability
Life insurance premiums in India are often cheaper than policies abroad.2. Currency Advantage
Sometimes, premiums paid in foreign currency are cost-effective because of exchange rate benefits.3. Customised Plans
Most insurance companies present NRI-targeted life insurance policies that correspond to NRIs' particular needs and opportunities, including foreign currency premiums and higher sum assured.4. Tax Benefits
Premiums paid toward life insurance policies include tax deductions under Section 80C of the Income Tax Act up to a limit of ₹1.5 lakh each year. Additionally, the amount received by the beneficiaries as the death benefit is exempt from tax under Section 10 (10D).5. Economic Stability
The booming economy in India provides NRIs with a favourable environment for investing in life insurance, thereby empowering their families to return to India with their earnings.6. Ease of Purchase
The NRIs can easily buy insurance policies and manage premium adjustments through several insurance companies, and nearly all insurance companies have online application procedures.7. Support for Dependents
Sometimes, NRIs’ families depend on them for expenses or medical emergencies. Hence, life insurance comes in handy in these cases.8. Compliance with Regulations
NRI life insurance policies are prescribed to comply with the law requirements in the country of domicile and India to safeguard the interests of the policyholder and beneficiaries.Features of Indian Life Policies and Abroad Life Policies
The following table compares Indian policies and policies in other countries:
Tax Benefits for NRIs Under Indian Laws
Indian laws provide several tax benefits to the Non-resident Indians (NRIs). Here are some key benefits:
Taxation on Indian Income Only
They are only subject to income tax on income earned or receivable in India. Income received from other countries is not taxed under Indian laws.
Tax-Free Interest on NRE and FCNR Accounts
Any interest earned on Non-Resident External (NRE) and Foreign Currency Non-Resident (FCNR) accounts is exempt from Income Tax in India.
Double Taxation Avoidance Agreement (DTAA)
India signs many DTAAs to avoid the possibility of double taxation on the same income as the NRIs. This agreement would suffice and help prevent income from being taxed twice for incomes earned in India and elsewhere.
Tax-Free Long-Term Capital Gains on Equity
In terms of Section 112A of the Income Tax Act, 1961, capital gains in respect of such long-term capital assets in the form of equities are completely exempt from tax where the amount of gains at the time of realisation does not exceed ₹1 lakh per financial year.
Deductions under Section 80C
NRIs can take exemptions for expenditure on specified securities, which include PPF, NSC, and tax saving deposits subject to an overall limit of ₹1.5 lakh per year.
Deduction under Section 80D
NRIs are allowed to deduct the expenses of health insurance policies for themselves, their spouse, their children, and their parents, up to a limit of ₹25,000 for themselves, their spouse, and their children and ₹50,000 for their parents.
Deduction under Section 80E
NRIs benefit from tax exemptions in respect of interest on borrowing made exclusively for education, whether in India or elsewhere – up to ₹1,50,000 in a financial year.
Tax-Free Dividends
Dividends received from India are tax exempted in the hands of non–resident Indians.
TDS Refund
NRIs can apply for refund TDS if the amount deducted exceeds the NRI's actual tax liability.
Estate Planning
NRIs can also utilise life insurance policies and other related financial instruments for the effective planning of estates with a view of having their property dealt with as they desire.
Eligibility Criteria for NRI Life Insurance
You need to be eligible for NRI life insurance, and the requirements are:
Moreover, NRIs in some countries might not be eligible for life insurance in India. So, the country you are in must be on that list of those eligible for NRI life insurance.
Documents Required for NRI Life Insurance
For an NRI to apply for life insurance to manage several financial and legal matters in India, you must submit certain documents.
Here’s a list of the required documents required to register for an NRI certificate:
How to Apply for Life Insurance in India as an NRI?
Follow the steps mentioned below to apply for life insurance as an NRI:
Step 1: Select a reputable insurance company offering policies tailored to NRIs.
Step 2: Fill out the life insurance application form with accurate details.
Step 3: Provide all necessary documents along with the completed application form.
Step 4: The insurer will review your application and documents to assess your eligibility.
Step 5: Pay the required premiums through NRE/NRO accounts, international bank transfers, or other accepted payment methods.
Step 6: Once approved, the insurer will issue the policy, and you'll receive the policy document.
Step 7: Keep all documents safe and accessible for future reference and claims.
Common Myths and Misconceptions about NRI Life Insurance
Myth 1: NRIs Don't Have Tax Liabilities in India
Fact: Tax is applicable on income earned or accrued in India recognised from any source for every NRI residing outside India. This income comprises rental income, capital gains, and dividends from Indian sources.Myth 2: All NRI Bank Accounts are the Same
Fact: NRI bank accounts can be classified into several categories, each with its function:
- Non-Resident External (NRE) Account: The NRE account allows foreign credits from outside India.
- NRO (Non-Resident Ordinary) Account: The NRO account manages income earned in India, such as rent, pension, etc.
- FCNR (Foreign Currency Non-Resident) Account: This account allows you to save money earned overseas in foreign currency.
Myth 3: NRIs Can Only Give Power of Attorney to Relatives
Fact: NRIs can have power of attorney over any person they deem worthy, which does not have to be a relative to them. This may be particularly helpful in dealing with property or monetary issues in India.Myth 4: NRIs Cannot Get Loans in India
Fact: NRIs can get loans in the Indian market to buy any residential or commercial property for any permissible use. They can also be borrowers or cosigners for loans or guarantees.Myth 5: NRIs Cannot Apply for Joint Loans with Resident Indians
Fact: NRIs can apply for joint mortgages with resident Indian citizens. This requires more documents, though it is conceivable.Myth 6: NRIs Cannot Purchase Term Insurance Plans
Fact: Term insurance plans purchased from India are effective worldwide and are open to NRIs. This guarantees their families' financial security irrespective of their place of abode.Myth 7: NRIs Cannot Vote in Indian Elections
Fact: Overseas Indian voters are allowed to vote in Indian elections provided they are registered voters and meet the stipulated requirements. This enables them to engage in the political process of their parent country.Key Considerations for NRIs when Choosing a Policy
When NRIs (Non-Resident Indians) are buying life insurance in India, there are several rules and regulations they need to keep in mind:
Overall Cost of the Policy
Proper research is essential before finalising and purchasing a policy. This includes comparing and assessing different policy plans, especially in foreign countries and India.
Medical Examination Cost
If NRIs purchase life insurance abroad, they will have to go under medical examination there, which can be quite pricey. However, if they take life insurance in India, they won’t have to undergo a medical examination cost.
Tax Benefits
In India, NRIs get many tax benefits when purchasing life insurance. Usually, the money paid for premium, death, or maturity benefits is tax-free under India’s income tax regulations under sections 80 C and 10 (10 D).
Tips for Improving Chances of Getting NRI Life Insurance Approved
1. Maintain a Healthy Lifestyle
- Quit Smoking: Smoking can raise premiums or even mean coverage is denied.
- Regular Exercise: Maintaining a healthy lifestyle with proper exercise prevents diseases, such as high blood pressure and diabetes, which helps approve the application.
2. Manage Pre-existing Conditions
- Medical Check-ups: It’s essential to remain regular with medical check-ups and screenings, especially for any health conditions you already have.
- Medication Compliance: Show insurers that your condition is under control by adhering to prescribed medications and treatment plans.
3. Maintain a Clean Driving Record
- Safe Driving: Maintain a clean record to avoid traffic violations and accidents that may harm your insurance application.
- Defensive Driving Courses: Consider a defensive driving course if you want to improve your driving skills, cut insurance risk, or simply save money.
4. Stable Employment
- Consistent Work History: Financial stability, such as owning a stable job with a consistent income, can increase your chances of approval.
- Low-Risk Occupations: Avoid high-risk jobs that could result in higher premiums or denied coverage.
5. Honest and Accurate Application
Full Disclosure: On your application, be sure to include all medical history, lifestyle habits, and occupational information.6. Maintain a Good Credit Score
- Timely Payments: Some insurers may view you as financially responsible, so paying your bills on time is important to maintain a good credit score.
- Credit Report Monitoring: Check your credit report often and fix any errors or inconsistencies.
7. Prepare Necessary Documentation
Complete Paperwork: Ensure all the papers have been correctly filled out and submitted.FAQs about NRIs Purchasing Life Insurance in India
When should NRIs consider purchasing life insurance in India?
What are the benefits of NRI life insurance in India?
Can NRIs pay their premiums in foreign currency?
Are Indian life insurance policies valid abroad?
What are the necessary documents for NRIs to apply for life insurance?
How soon is the death claim of an NRI settled?
Is my NRI life insurance still valid when I change countries?
Can the Registration Certificate of an NRI be used in India for employment?
How do premium payments work for international life insurance?
Important Guides Related to Life Insurance
Disclaimer
The information provided on this page is for informational purposes only and is sourced from publicly available resources. It is not intended to serve as professional advice or a recommendation.
All policy details, benefits, coverage, premiums, and other figures mentioned are illustrative and subject to change based on individual requirements, eligibility, product terms, regulatory changes, and other factors. Guaranteed returns, if applicable, are subject to policy terms, conditions, and timely premium payments.
Customers are advised to review the policy documents, terms and conditions, and consult relevant experts (such as financial or tax advisors) before making any decisions. For a detailed disclaimer, please refer to our Life Insurance Disclaimer.
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Click here for Life Insurance Policy Wordings.Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
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