Life insurance is something every individual must have in place to secure the financial future of their loved ones. Term insurance is one of the most popular types of life insurance because it offers large amounts of sum assured at affordable premiums. If you are a Non-Resident Indian (NRI) and are considering buying a term insurance plan in India, here are a few things you need to think about:
- Make sure you are eligible
You can buy a life insurance policy if you either qualify as an NRI or a Person of Indian Origin (PIO). An NRI is an Indian citizen who is residing in a foreign country for an extended period – at least 183 days in a financial year.
A citizen of another country, other than Bangladesh or Pakistan, is considered a PIO if at any point they held an Indian passport or whose parents, grandparents, or great grandparents were Indian citizens. The spouse of an Indian citizen or an individual who qualifies as a PIO according to one of the above clauses is also considered a PIO.
- Select the right insurer
Once you’re sure you qualify either as an NRI or a PIO, you should compare different insurers offering life insurance for NRIs. When selecting a term insurance policy, you shouldn’t simply compare the premiums. A low premium does not always mean the right policy or one that offers comprehensive coverage. An important factor to consider is the claim settlement ratio of the insurer. This ratio tells you how reliable the insurer is when it comes to settling term insurance claims. A 95% claim settlement ratio means they settled 95% of all the claims they received in one year.
You should also look at the turnaround time because you want to opt for an insurer who is quick in settling and disbursing the funds. Other things to look at are the quality and accessibility of customer service, brand image, and if they have a specifically designed process in place to help NRIs with documentation, medical tests, etc.
- Figure out the medical exam procedure
A medical test is mandatory in the case of life insurance in two cases – either if your age is above the one specified by the insurer (usually 35 or 40) or if your policy amount is above Rs 10 lakhs. What the medical test entails will depend upon factors such as your age, family’s medical history, and your lifestyle habits such as whether you drink alcohol or smoke. Generally, a urine and blood test are conducted, and your height and weight are measured. Additional tests may be required to measure cholesterol levels and STDs.
As an NRI buying term insurance in India, you can go about the medical test in two ways. One, you can come to India and get your medical test done through the insurer. Or two, you can get your test done in the country of your current residence as per the terms of the insurer and send them the reports. Most insurers have tie-ups with overseas medical facilities for the medical examination.
- Determine how you will pay the premium
Once you narrow down on the insurer and select the term insurance policy, you need to consider how you’re going to make your premium payments. You can pay your term insurance premium through a Foreign Currency Non-Resident Account (FCNR). This is a type of fixed deposit account that is held in foreign currency for depositing the income that you earned overseas.
Alternatively, you can also pay in Indian rupees through a Non-Resident External Account (NRE) or through a Non-Resident Ordinary Account (NRO) depending on whether your income source is entirely from overseas or partly from overseas and partly from India.
- Understand how you will be taxed
When it comes to life insurance, there can be three points of taxation – when you pay premiums, when you earn interest, and when you receive the payout either as a death benefit or maturity benefit. There are different sections under the Income Tax Act, 1961 in India that allow for certain tax deductions and exemptions for various instruments including life insurance policies. However, when you look at term insurance for NRIs in India, you need to consider:
- Do these sections apply to you as an NRI
- What the tax laws are in the country you are currently residing in
You can consult a financial expert who can help you figure out how your term insurance will be taxed in the context of both India and the foreign country.
If you have any doubts about either the process of buying the policy or the claim settlement process, you should reach out to the insurance companies you have narrowed down. It will not only help you get a clear idea of the policy, but you will also be able to tell how the service of the insurer is.