You settled abroad many years ago. You are planning to purchase a life insurance plan. You are not sure whether to purchase a life insurance plan in India or in the country of residence. In this post, I will discuss various regulations pertaining to life insurance for Non-residents. I will also discuss whether you should purchase insurance in India or whether you should a life insurance plan abroad.
Different Types of Life Insurance Plans
There are many types of insurance plans available such as traditional life insurance plans, unit-linked insurance plans (ULIPs) and term life cover plans. I have expressed my dislike for traditional life insurance plans and ULIPs in many of my earlier posts. Hence, I will not consider investment and insurance combo products during the course of this discussion.
The purpose of the post is to assess whether you, as a NRI, should purchase a life insurance plan in India. The FEMA rules do not differ based on the type of life insurance plans.
Can an NRI buy life insurance in India?
Yes, NRI are permitted to purchase life insurance from Indian Insurers.
Insurers are permitted to issue policies to non-residents through their offices in India or abroad.
Life insurance policies can be issued in both Indian Rupees and Foreign Currency.
Do I need to visit India for purchasing life insurance from an Indian insurer?
Not necessarily. A few insurers may allow you to purchase insurance online without physical presence in India. You can approach the insurance company in India and purchase the plan.
However, most are likely to insist on your presence in India at the time of purchase of the insurance plan.
If required, you will have to go through medical tests abroad and submit the reports with the insurer. The insurance company may have guidelines in selecting the medical practitioner or laboratory for checkup. However, the cost of such medical tests will have to be borne by you.
By the way, you can also purchase policies while on visit to India.
For residents (or even for NRIs purchasing plans while on visit to India) who have to undergo medical tests in India, the cost of the medical tests will be implicit within the cost of the plan.
Life insurance companies may not be comfortable issuing high value policies without doing medical examination in India.
The insurance companies may impose additional conditions if you purchase life insurance while staying abroad. For instance, LIC restricts the Sum Assured to Rs 1 crore if the life insurance plan is purchased from abroad.
Is premium different for residents and non-residents?
Typically, the premium does not depend on your residential status.
However, if you are placed in a country where risk to life is higher, then insurance company can increase the premium.
How to pay premium for life insurance plans?
If the policy is denominated in a foreign currency, then the premium payment must be made in foreign currency or from NRE/FCNR account of the policyholder or his family members.
For policies denominated in Indian Rupees, the payment can be made from NRO accounts too (can be made from NRE/FCNR accounts too).
Read: NRE, NRO and FCNRB Accounts/Deposits
Documents required for making claim
Though the exact set of documents required to make a claim will vary across insurers, here is the list of common documents.
- Original policy document
- Death certificate of the policyholder attested by Indian Embassy/High Commission abroad.
- Identity proof of the nominee
If the death of the policyholder happens while the policyholder is on visit to India, attestation by the Indian Embassy/ High Commission may not be required.
You are advised to check the exact claims process with the insurance company.
FEMA Rules for Claim Settlement
- In case the claimant (nominee) is resident outside India and the life insurance policy is denominated in Rupees, then the payment in foreign currency is permitted only in proportion of the premium paid in foreign currency to the total premium payable.
- For the life insurance policies denominated in Indian rupees and for which premium has been paid from non-repatriable rupees (NRO account), claims/maturity/surrender value of such policies can be credited to only NRO accounts of the beneficiary. This applies even in case of non-resident nominees.
- For a non-resident beneficiary, the claim amount/ maturity amount/surrender value of a policy (to be settled in foreign currency), can be credited to NRE/FCNR accounts, if he/she so desires.
- For a resident beneficiary, the claim amount/ maturity amount/surrender value of a policy (to be settled in foreign currency), can be credited to RFC (resident foreign currency) account, if he/she so desires.
Points to Note
- Not every insurer will issue a life insurance policy in foreign currency. In that case, the insurance company will have to bear currency risk i.e. if the foreign currency appreciates against India rupees, the liability of the insurance company will rise sharply.
- If the insurer were to issue life insurance policy in foreign currency, the premium will have to be adjusted to account for the currency risk.
- For policies denominated in foreign currency, insurance premium must be paid in foreign currency or from balance in NRE account.
- For policies denominated in Indian Rupee, there is no such restriction. The premium can even be paid from NRO account.
- Do compare the cost of purchasing life insurance in the country of residence. It is quite possible that you can get cheaper cover abroad especially if you are residing in a developed country. Go through this Mint post for more on this topic.
When can you consider purchasing Life Insurance in India?
If you think your nominee will find it difficult to make a claim with the foreign insurer, you are better off purchasing a plan in India. This is especially true if your nominee resides in India.
It also depends on the duration of your stay abroad. If you have moved out of India only for a few years, then it makes sense to purchase a life insurance plan in India.
Tax Benefits for Life Insurance Purchase in India
NRIs get the same tax benefit as resident Indian would i.e. up to Rs 1.5 lacs under Section 80C of the Income Tax Act.
Read: Entire Life Insurance Premium is not tax- deductible
Can I continue to hold life insurance policies that I purchased abroad (foreign insurer) after moving back to India?
Yes, you can. With investment linked insurance plans, you may not have much choice and may even have to continue till maturity.
However, do revisit the term insurance you purchased abroad (from foreign insurer). With life insurance, ease of claim settlement is an important criterion for selection. Your resident nominee may not be comfortable making claim with a foreign insurer. Hence, in some cases, it may make sense to let the foreign plan lapse and purchase a term plan in India.
There are other aspects too such as premium that you must consider. For instance, you may have purchased life insurance abroad at a young age. After that, you contracted some illnesses which might hamper your chances to get a new life insurance plan. In such a case, it may make sense to stick with the existing insurance (foreign insurer) despite shifting back to India.
However, the premium for such policy from foreign insurer shall be paid from Foreign Currency Account maintained with a bank abroad or from Resident Foreign Currency Account.
Read: Resident Foreign Currency Account
PersonalFinancePlan Take
If you plan to be abroad for only a short duration or have nominees who reside in India, it may make sense to purchase a life insurance plan from an Indian insurer. While purchasing life insurance, you must also look at ease of claims settlement. For instance, you wouldn’t want your parents who reside in India to communicate with an insurer abroad to settle claim.
Additionally, based on your requirement, you must also choose currency for payment of premium. If you want the proceeds to be repatriated, then it is better to make payment in foreign currency.
On the other hand, if you plan to stay abroad for long term and your family (nominee) also resides with you, you must explore purchasing insurance abroad.
It is not either-or situation. Based on your requirement, you can purchase life insurance both in India or abroad depending upon comfort with the insurer and ease of claim settlement.
Additional Read
FEMA Regulations (Holding insurance by residents from Foreign Insurers)
Book: In the Wonderland of Investments for NRIs by A.N.Shanbhag/Sandeep Shanbhag
Disclaimer: My understanding of FEMA is limited. I have relied on information on RBI website, insurer websites and leading business dailies while writing this post. You are requested to verify the information with the insurer before you make a decision to purchase life insurance policy in India. Additionally, ask the insurance company about the exact claims process in case of demise abroad.