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Should NRIs buy life insurance in India?

Life insurance has been a traditional investment favorite in India and most Indians are likely to hold at least one, if not more, life insurance policies. If you are a Non Resident Indian (NRI), you may have bought a policy while you were a Resident Indian or you may be considering buying one as an NRI. Let's take a look at the rules relating to buying life insurance in India.

The rules regarding insurance are governed by Exchange Control Manual.

Can an NRI buy life insurance in India?

Yes, NRIs and Persons of Indian Origin ( PIOs) (as defined by FEMA) who are resident abroad are allowed to buy life insurance in India. Thus, all persons of Indian origin, whether citizens of India or not are allowed to take a life insurance policy in India.

Does the NRI have to be present in India at the time of buying the policy?

No, the NRI can purchase the policy from overseas through written communication with the insurance company in India. There may be certain additional costs in such case. For instance, if you purchase the policy from abroad, you would have to do the medical examination and send the report to the insurance company in India. You would have to bear the costs of this medical examination yourself. However if you purchase the policy in India, you would not have to bear this cost as it would be inbuilt in the cost of your policy.

How can premiums be paid?

An NRI can pay premiums by any of these modes:
1. Remittance in foreign currency 2. NRO bank account 3. NRE/ FCNR bank account

Elizabeth Venkataraman, Senior Vice President and Head of Marketing , Kotak Mahindra Old Mutual Life Insurance says, "Insurance companies are allowed to issue policies denominated in either Indian rupees or foreign currency to NRIs. If the policy is foreign currency denominated, the premiums are to be collected in foreign currency from abroad or out of NRE/FCNR accounts of the insured or insured's family members held in India. For rupee denominated policies issued to NRIs, funds held in NRO accounts are to be used to pay premiums."

However, do remember that not all insurance companies offer foreign currency denominated polices.

Are premiums higher for NRIs as compared to resident Indians? Are there any limits on the sum assured?

"No," says Surat based VK Virani, an agent of the Life Insurance Corporation and an MDRT 'Court of Table' member. "The premiums are the same for residents and non residents. However, if NRIs are living in countries where risks are higher, premiums maybe higher."

As for the sum assured, Virani explains, "In case of LIC policies, if the NRI chooses to conduct his medical examination in the foreign country, the sum assured will be limited to Rs 1 crore. If the NRI has his medical examination done on a visit to India, then he can get a higher cover."

What are the rules regarding death and maturity proceeds?

The insurance policy purchased in India will cover death that occurs anywhere in the world. Maturity and death proceeds are repatriable to the extent of premium paid in foreign currency in relation to the total premium paid. If premiums are paid fully in Indian rupees through the NRO account, the death or maturity proceeds will not be repatriable.

If policy was taken before becoming NRI, Venkataraman explains, "This does not affect the status of the policy and the proceeds remain repatriable to the extent of premium paid in foreign currency in relation to the total premium paid. "

Should an NRI buy life insurance in India?

Having seen the rules and regulations of buying life insurance in India, it is important for NRIs to evaluate if they should indeed buy life insurance in India. There are a few things to consider here:

1. Cost Will the policy be cheaper in the country of residence? As a broad benchmark, a healthy 40-year-old man who buys a 20-year level term policy in the US, which has a fixed annual premium, might pay about $800 a year to secure a $500,000 death benefit. The same policy, that is, 20 year term policy with a sum assured of Rs 2.5 crore will cost over Rs 1 lakh per annum.

2. Tax regulations In India, benefits from a life insurance policy, including earnings, whether on death or maturity are treated as tax-free. However, since an NRI will have to pay tax on his global income in his country of residence and the taxability of this global income would be on the basis of the tax laws prevailing in the country of his residence, he must look closely at tax provisions in his country of residence. In the US for instance, taxation of life insurance proceeds is quite complicated.

Death benefits are tax-free to the extent of the sum assured or life cover. Any amount over and above the sum assured, such as bonuses will be taxed. Similarly, there are certain rules regarding withdrawals from a policy. The cash value of life insurance is allowed to grow on a tax deferred basis, that is, earnings are taxed only on withdrawal. In certain cases withdrawals maybe tax free to the extent of premiums paid till date of withdrawal.

To sum up, Venkataraman says, "The choice is entirely personal. However, NRIs are advised to take into consideration, tax laws in force at the location where they are currently resident before buying a policy in India."

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