In 2020, India became the destination for the largest migrating population worldwide, with a staggering 18 million individuals from the country residing outside their homeland. This shows that a significant number of Indians have chosen to explore opportunities and establish their lives in foreign lands.
As more and more Indians continue to migrate abroad, the need for financial security and protection has become increasingly important. In any case, their top priority is ensuring the safety of their families. In doing so, they strive to ensure that they are taken care of, regardless of the geographical distance. And, this is where term insurance comes into play. It is the perfect choice for them to secure their family's future.
In this article, we will delve into the importance of term insurance for NRIs, explore the numerous benefits, and much more.
Reasons Why NRIs Should Consider Purchasing a Term Insurance Policy
Here are some reasons that make a term insurance policy an excellent option for NRIs -
- It Helps Protect Your Financial Dependents
If you are the sole breadwinner in your family and have dependents who rely on your income for their livelihood, a term insurance policy provides vital financial protection. In the unfortunate event of your demise when the policy is active, the policy's payout of a fixed sum of money can support your family financially.
- It Covers Your Loans
If you have invested in properties in India and have taken loans for the same, buying a term insurance policy becomes crucial. Not only can the claim amount help your family realise their aspirations in the short and long term, but it also acts as a safety net for settling these outstanding loans or liabilities. This also includes business loans, education loans, personal loans, etc. Term insurance ensures that you do not pass on financial burdens to the next generation.
How Does Term Life Insurance for NRIs Work?
Term life insurance is a great way for NRIs to secure their family's financial future. This affordable product provides straightforward coverage, ensuring that in the unfortunate event of your untimely demise during the policy term, your loved ones receive essential financial protection. So, it is one of the easiest ways to ensure that your family is well taken care of.
The insurance company will pay a fixed sum, known as the 'sum assured,' to your family. This amount can be used to replace your income and ensure that your family's financial needs are taken care of. It guarantees that your family does not have to give up on their dreams and aspirations in your absence.
However, term insurance is simply a pure risk cover, which means that if you survive the policy term, you won't receive any benefits.
Things to Keep in Mind Before Purchasing Term Insurance
If you are an NRI planning to purchase a term insurance plan in India, understanding these key aspects will help you make informed decisions -
1️⃣ Documents Required
When purchasing a term insurance plan in India as an NRI, you will need to provide the following documents to the insurance company:
- Duly filled application form
- Attested copy of passport
- Medical tests and reports
- Age proof certificate
- Income proof papers
The insurance company may require additional documents based on their specific guidelines and policies.
2️⃣ Premium Payment
In India, insurers provide NRIs (Non-Resident Indians) with various options for making premium payments for term insurance policies. NRIs can conveniently pay their premiums through the following means –
- Non-Resident Ordinary (NRO) Account
- Non-Resident External (NRE) Bank Account
- Foreign Currency Non-Repatriable (FCNR) Account
Furthermore, it is imperative for NRIs to check the currency in which their term insurance policy is issued.
- If the policy is issued in a foreign currency, NRIs are required to make premium payments in the corresponding foreign currency using an NRE or FCNR account.
- If the policy is issued in Indian rupees, NRIs must pay the premiums through an NRO account.
In short, NRIs have the flexibility to choose the most suitable premium payment option based on the currency their policy is issued and the type of account they hold.
3️⃣ Payout Made by the Term Insurance Plan
Similar to the premium payments, term insurance policies provide benefits in the currency mentioned in the policy document. This can either be in Indian rupees or the specified foreign currency. In the event of a claim, their nominee must submit the necessary documents according to the policy terms to receive their claim payment.
The insurer may request essential documents, including –
- Original policy document
- Nominee's identification proof
- Death certificate of the insured person, etc.
To ensure a smooth and hassle-free claim settlement process, NRIs must keep all the essential documents readily available and ensure that they are up-to-date.
4️⃣ Tax Implications
Tax implications are an important aspect to consider when it comes to term insurance for NRIs.
- If the NRI passes away during the policy term, most insurers transfer the claim payout to an NRE account. And, their country of residence may impose a tax on it. So, it is crucial for the nominee to check whether the proceeds are taxable or not.
- On the other hand, if the NRI files taxes in India, they can enjoy the following tax benefits under the Income Tax Act of India, 1961.
- Section 80C allows NRIs to claim tax deductions on their term insurance premiums, up to a maximum deduction of Rs. 1.5 lakhs.
- And, if the NRI passes away during the policy term, the claim payout received by the nominee will be exempted from tax under Section 10 (10D).
5️⃣ Protection Under Section 45
Under Section 45 of the Indian Insurance Act of 1938, an insurance company is legally bound to honour a death claim on a life insurance policy if it has been in force continuously for a minimum of three years. This means that the insurer cannot reject the claim on any grounds whatsoever - as long as the premiums are paid on time. This makes term insurance in India an exceptional option for NRIs. If, unfortunately, you pass away during the policy term, your family is practically guaranteed a payout from the insurance company. It provides much-needed financial stability for them during difficult times.
6️⃣ Death is Covered Globally
Term insurance policies purchased in India offer global coverage for all types of deaths, except suicides within the first year of policy purchase. In such cases, the insurer refunds the premiums paid to the nominee.
No matter which country the death happens across the globe, the NRI’s family will still receive the claim payout. This means that even if you purchase a policy in India and pass away overseas, your loved ones will still be eligible to receive the claim amount.
If you are an NRI looking to secure your family, term life insurance is the best choice. It offers a wide range of advantages, such as flexible premium payment options, customisation options, tax benefits, and more, making it a cost-effective way to ensure that their dreams and aspirations remain secure.