How can a NRI benefit from life insurance policy?

Life insurance has remained one of the most favorite instruments of investment in India. Since the demand is so high, there are a number of policies to cater to various needs. Most people in India who dabble in investments hold at least one and very often more number of life insurance policies. So, the question arises that if you are a NRI, whether you too can invest in this vehicle.

Salient facts regarding NRI investment in life insurance in India

Here are some of the most important facts regarding the NRI investment in life insurance in India:

  • NRI are allowed to buy life insurance policies in India.
  • You can buy the insurance policy when you come to visit India, or you can buy it from the country of your residence. Written communication between you and the insurance provider is necessary to buy your policy from abroad.
  • When you buy the insurance policy from outside India (from your country of current residence), you may have to bear some additional costs. For example, you will have to bear the cost of the medical examination and the cost of mailing it in. However, if you buy the policy while you are in India, the cost of the medical examination is inbuilt into the cost of the policy.
  • If the policy is denoted in Rupees, you will have to pay premium in Rupees. If the policy is denoted in foreign currency, you will have to pay the premium in foreign currency. All companies do not offer the foreign currency option.
  • The premium can be paid in the following three different ways:

o   You can send remittances in foreign currency.

o   If the premium is to be paid in Rupees, you can use NRO account to pay the premium.

o   If the premium is to be paid in foreign currency, you can use NRE account or FCNR account for the purpose.

  • You pay the same premium as a resident of India.
  • If risks are deemed to be higher in the country of your residence, then you may be charged a higher premium.
  • The regulations regarding the maximum sum assured vary from company to company. In case of LIC, if you get your medical examination done in the country of your residence, you can have a maximum sum assured of Rs. 1 crore. But if you have your medical examination done in India, you can get a higher cover.
  • Life insurance policies are valid no matter where the death occurs.
  • Only that amount of the life insurance proceeds are repatriable which is equivalent to the amount of the premium that have been paid in the foreign currency. So, if the entire premium has been paid in Indian currency through NRO account, the benefits cannot be repatriated.
  • If you took out the life insurance policy before your status changed to that of a NRI, this does not affect the status of the policy. Only the amount of premium which has subsequently been paid in foreign currency can be repatriated.
  • Life insurance benefits are tax free in India.
  • However, the benefits will be taxed in the country of residence according to their tax laws.
  • Similarly, withdrawals are also subject to the tax regulations of the country of your residence.

Should NRIs take out life insurance policies in India?

The ultimate choice is entirely personal as there are both advantages and difficulties for NRI to take out life insurance policies in India. However, it should be kept in mind that tax regulations in the country of your residence will determine to a large extent how much benefit you derive from this instrument of investment.

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