Life Insurance Policy:
There is a famous saying “One no longer prays when it is lightning, but it is necessary to have life insurance”. In life the only thing which is certain is uncertainity. No matter in which city in which corner of the World one lives a life insurance policy is a must. This is a life saver for an NRI to have in his portfolio and fortunately a term life insurance policy comes cheap. Surely a few thousand is not too much to pay to secure one’s family in case one is no longer around to do the job himself. Remember the best person to care for yourself is you”.
How can an NRI purchase a life insurance policy in India?
- NRI’s and PIO (Person of Indian origin) and all residents of India can purchase life insurance policies in India.
- If one is an NRI he does not need to come to India to purchase a life insurance policy. He can maintain a direct communication with the insurance Company in India. The medical tests need to be conducted abroad and the report sent to the Insurance Company in India. One has to bear the cost of the medical tests from his own pocket.
- If an NRI purchases a life insurance policy in India the costs of the medical tests are included in the policy.
- An NRI can purchase a life insurance policy by paying the premium in a foreign currency such as in dollars if the life insurance policy has such a clause. The premiums are paid through the NRE account.
- The sum assured or the maturity benefits are repatriable to the extent of the premium paid in foreign currency say dollars with respect to the total premium paid. The maturity amount or the sum assured is paid into the NRE account.
- If an NRI has taken a policy (existing policy) before becoming an NRI then he needs to pay the remaining premiums in the foreign currency and the extent to which the premiums are paid vis-à-vis the total premiums is repatriable to the country where he resides.
- If an NRI conducts the medical tests in a foreign country say the US the maximum amount of life insurance he can take up is a Crore. If he comes to India and then conducts his medicals he can get an insurance cover for a higher amount.
- An NRI can choose to take up a life insurance policy and pay the premium in rupees through his NRO account. The sum assured obtained on ones death or the maturity proceeds are not repatriable in case if the premiums are paid in Indian rupees.
Is the cost of the premium same for a resident Indian and an NRI?
- Yes, no distinction is made between a resident Indian and an NRI as far as the premium for the life insurance policy is concerned.
- If one resides in a country where the threat to life or risk is deemed high such as an earthquake prone country then one has to pay a higher premium.
Is it better for an NRI to take a life insurance policy in the country one resides in or in India?
- One needs to make a choice whether he plans to settle abroad permanently or come back to India. If the decision is to come back to India then it is better to take up a life insurance policy in India.
- If one plans to settle abroad then it is better to take up a life insurance policy abroad especially in countries such as the USA, UK and Australia. Life insurance policies especially plain vanilla (basic) term insurance policies tend to be cheaper in these countries.
- Developed countries have the latest updated data on mortality (Mortality charts and tables) which is highly trustworthy and life insurance Companies can lower the premiums charged based on this data. India has some distance to travel before it reaches this level of mortality data accuracy.
- Market segmentation is a popular practice in the life insurance industry abroad and customers are segregated based on socio-economic status.
- One has access to very good health care systems and many countries make health care compulsory.
- Premium costs are lower in developed countries because of the large pool of customers who take up life insurance policies and push down the costs. A higher level of insurance awareness is present which leads to a better insurance penetration and density.
- Underwriting principles and systems are excellent in foreign countries as they measure risk based on real time data. This leads to a reduction in premium. In India underwriting is done based on the declaration of good health by the policy holder himself. This leads to a higher premium.
Tax benefits of taking up a life insurance policy
- A resident Indian gets a tax deduction up to INR 1 Lakh per annum on the premiums paid under Section 80 C and the tax proceeds are free at maturity under Section 10 10(D).
- An NRI pays tax on his global income depending on the country he resides in and the taxation depends on the laws prevalent in that country.
- An NRI does not have to pay tax on the sum assured amounts obtained as a death benefit. Bonus amounts are generally taxed.
- The cash value of a policy (basically protection + savings) commonly called an endowment policy is taxed on a deferred basis mainly at withdrawal.
- In certain countries and cases withdrawals are tax free up to the amount one pays as a premium till the date of withdrawal.
There is a famous saying “Never postpone what can be done today”. A life insurance policy is a protection cover for one’s near and dear one’s and cannot be postponed.