NRIs And Life Insurance: What You Need To Know Before You Buy

NRIs (non-resident Indians) who are buying life insurance in India need to be aware of a few crucial aspects. If you are in this group, then you should certainly note the same in order to avoid issues in the future. Here are a few things that you should know if you are investing in term insurance for NRIs or any other life insurance plan. 

General Guidelines for NRIs Investing in Life Insurance 

From NRI term insurance to other types of life insurance plans, there are a few things that everyone should be aware of. These include the following: 

  • NRIs (non-resident Indians) and PIOs (People of Indian Origin) are eligible to purchase life insurance policies, as per the FEMA (Foreign Exchange Management Act) regulations
  • NRIs can thus purchase term insurance and other life insurance plans irrespective of the country they reside in
  • You can pay premiums via NRO bank accounts or even through FCNR/NRE bank accounts. You may also pay through foreign currency, noting the one stated in the life insurance policy document. 
  • You should check the eligibility criteria for life insurance carefully before looking at available policies, along with getting an idea of the tax-related implications
  • You should always check whether it is more affordable to purchase policies abroad or in your country of residence
  • You can buy a term insurance policy abroad, although you will require a medical examination. You have to dispatch this report to the insurance company in India for the evaluation of your life insurance application. In this case, you will have to foot the bill for the medical examination. If you purchase the policy in India, then you will not have to pay any extra costs for medical examinations. Companies sometimes offer policies only when the NRI is agreeable to getting a medical test done at their own expense, which proves costly at times. 
  • The best way is to complete the policy formalities when visiting India with your family or alone. This means that you will not have to pay this extra medical test cost from your own pocket. The insurance company will bear the same in India. 

What else should you know while investing in life insurance? 

NRIs should know about some other aspects, like taxation while investing in life insurance. Whenever you purchase term insurance in India, you can get the same tax benefits under Sections 80C and 10 (10D) of the Income Tax Act. 

Yet, you may have to pay your taxes on income that was received abroad. The taxation rules in your country of residence will determine the taxability of foreign income. Hence, you should carefully analyze the tax regulations in the country where you live. If you furnish a valid TRC (Tax Residency Certificate) and Form 10F, then TDS (tax deducted at source) will not be deducted. 

Here are some other points worth noting if you’re an NRI: 

  • You can get tax deductions up to Rs. 1.5 lakh under Section 80C, although it can only be on the income that you earn, receive, or accrue in India 
  • This benefit will be available for both individuals and HUFs residing abroad
  • You can also get the same benefit on the premiums paid for spouses and children in India. 
  • The deduction will be provided under Section 80C in the payment year. You can claim the tax deduction while furnishing your IT return for a specific financial year.
  • If there is any scenario where the policy comes up for renewal in a particular financial year, but you cannot pay the same and renew it the next financial year. It will not be accepted for any rebate or deduction in the earlier financial year. Rebates are only provided if you make the payment in the year in which it is due. 
  • Section 10 (10D) exempts the sum assured payout by the life insurance company to your nominee in case of a death claim. It also exempts maturity proceeds from life insurance policies, if applicable, subject to specific terms and conditions. 

NRI investments in life insurance are thus viable in India. However, you should keep all the above-mentioned factors in mind before finalizing your investment decision. Life insurance is a must for every household, and you can certainly opt for the same in your home country, even when you live abroad. However, it is best suited for you if you already earn some income in India and need to get tax deductions on the same. This is one reason why many NRIs invest in life insurance policies here in India instead of going for additional healthcare coverage in their countries of residence (many countries require mandatory health coverage). 

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