Should NRIs buy Term Insurance Plans in India?

Introduction

Work opportunities, pursuing higher education courses, taking up internships with promises of incredible jobs in the future - the list of what draws a person away from their own country to another for settlement and becoming Non-Resident Indians (NRIs), is a long one. However, no matter how far he/she is away from home, the country still considers them to be a part of Her. Thus, facilitating them with the most possible provisions and benefits.

And then, of course, there is the financial edge gained over NRI deposits - guaranteeing macroeconomic stability and fattening India’s Foreign Exchange Reserve. So, naturally, while NBFCs and banks are doing their part by lowering the interest rate on loans, the term insurance providers are doing their bit by extending term insurance plans for NRIs.

Now, term insurance policies targeted at NRIs are not all unicorns and rainbows. Much like any other insurance plan, there are a few restrictions, exclusions and other cons. However, do its pros still outweigh its cons making it a great financial move? Let’s find out!

Understanding Term Insurance for NRIs

The usual rumour around the block is that NRIs are not eligible to buy term insurance plans in India. But, here’s the truth - NRIs, despite residing overseas, can avail themselves of term insurance plans in India.

Term insurance provides several key features that make it an attractive option for NRIs:

1. It offers a high coverage amount at a low premium in India as compared to other countries, making it an affordable choice for individuals living abroad.
2. Coverage is given all across the globe and is not just limited to India.
3. Term insurance plans for NRIs do not require any such extra documentation and are pretty standard which includes - Proof of Death, ID proof of nominee, Bank account details of the nominee etc.

To avail of term insurance in India, NRIs are required to provide certain documentation, including proof of identity, address, and income. Additionally, medical examinations are necessary. These requirements ensure a transparent and secure insurance process for NRIs seeking coverage in their home country.

How NRIs Should Approach Term Insurance in India?

If you’re a NRI, planning to buy term insurance in India, the question that comes to your mind is - How?

• Conduct thorough research: Analyze the reputation, financial stability, claim settlement ratio (CSR), Amount settlement ratio (ASR) & Solvency Ratio of insurance companies.
• Identifying specific needs and coverage requirements by considering factors such as age, family size, annual income, the standard of living, end duration & inflation will determine the appropriate coverage amount and policy duration.
• However, In the case of NRIs, the multiplier idea to calculate coverage is not applicable since the earnings outside India are comparatively much higher.
• Understanding the policy terms, conditions, and premium payments is equally important
• NRIs must ensure they comprehend the fine print of their chosen policy, including the claim settlement process, premium payment methods, and any policy exclusions or limitations.

Debunking Myths About Term Insurance for NRIs

Term insurance for NRIs is often shrouded in myths and misconceptions which

MYTH: if they are not residing in India or if they are not essentially a citizen of India then they are not eligible to purchase a term insurance plan.

TRUTH: Term insurance plans can be purchased by an NRI from anywhere across the globe and their death will also be covered throughout the globe.

MYTH:  To avail of term insurance, the citizen has to be in India at that time.

TRUTH: The whole process of buying a term insurance plan can be done online, from anywhere and not specifically in India. However, a policyholder has to have an Indian bank account.

MYTH: Claim settlement for NRIs is complicated, and repatriation of funds may be challenging.

TRUTH: Insurance providers in India have streamlined their processes to cater to NRIs, ensuring smooth and efficient claim settlements.

Advantages of NRIs Choosing Term Insurance Plans in India

1. Evading GST through NRE/NRO Accounts:

• NRE (Non-Residential External) accounts (for parking the Indian earnings of NRIs) and
• NRO (Non-Residential Ordinary) accounts (for parking their earnings from foreign countries where the NRIs reside)

-are types of bank accounts available to Non-Resident Indians (NRIs) who live outside India.

NRIs can benefit from having an NRE or NRO account while purchasing term insurance in India. By utilizing NRE accounts, NRIs can avoid the Goods and Services Tax (GST) applicable to insurance premiums, resulting in cost savings.

However, in case they have NRO accounts only, then GST might be applicable in some cases.

2.  Remote Processing from Abroad:

NRIs can process term insurance plans from abroad without the need to physically visit India. With the convenience of online application processes and digital platforms offered by insurance companies, NRIs can apply, submit documents, and manage their policies from the comfort of their homes overseas.

3.  Secure Funds for Future Visits:

If an NRI ever plans to visit India, having a term insurance plan in India can provide the advantage of securing funds locally. By choosing an insurance policy with a maturity benefit or adding a rider for maturity benefits, NRIs can ensure that their money is available in India when they need it.

4.  Affordable Premiums:

Term insurance plans in India generally offer affordable premiums compared to the premiums across other countries. NRIs can obtain substantial coverage at reasonable costs, allowing them to protect their loved ones' financial future without straining their budgets.

Disadvantages of NRIs Choosing Term Insurance Plans in India

1. Coverage is provided for death across the globe. However, if it's in a 3rd world country, the scrutiny is a bit detailed leading to a slight delay in the disbursal.
2. The processing time for term insurance plans for NRIs is slightly longer (about 30 days or so) than the standard cases (approx 15 days).
3. Riders on term insurance for NRIs are not really offered by all term insurers and only a few companies are there which offer certain, if not all, riders.
4. There is an upper limit on the coverage offered to NRIs. This restriction is in place to hedge the risks for term insurers. However, with COVID now steadily getting under control, the rules on the upper limits are about to get a bit relaxed.

Hurdles faced by NRIs while buying a term insurance plan

1. ISSUE: If the person purchases the plan from abroad, then for the necessary health check-ups, they are required to get it done at their own expense.

SOLUTION: But, there are certain options available such as certain employers might provide health insurance plans that come with one free annual medical checkup and sometimes some governments also offer inexpensive or free medical checkups. This helps decrease the financial burden on a potential policyholder.

1. ISSUE: In some countries where English is not the first language, causes certain difficulties while completing the documentation for the policy.

SOLUTION: Make sure to be thorough with the language in use for documentation or hire a translator who can help with the documentation.

1. ISSUE: NRIs are exposed to currency exchange rate fluctuations, which can impact the value of the policy benefits received.

SOLUTION: Analyze the current market trends and carefully measure the expected returns before purchasing the plan.

Eligibility Criteria for NRIs Applying for Term Insurance in India

To qualify for term insurance in India, NRIs need to meet specific eligibility criteria. These include

1. Age restrictions and policy duration limitations: Most insurance providers in India have minimum and maximum age criteria for purchasing term insurance. NRIs must ensure they fall within the specified age range. Additionally, the policy duration is also limited, typically up to a certain age, and NRIs should consider this factor while selecting the appropriate policy duration.
2. Residence and citizenship criteria: NRIs residing in different countries may have varying eligibility criteria. Insurance providers may require NRIs to have Indian citizenship or maintain a specific residential status to be eligible for term insurance in India. NRIs need to review and fulfil these criteria before applying for a policy.
3. Considerations for non-working NRIs or those with irregular income sources: Insurance providers may have specific requirements for NRIs who are not employed or have irregular income sources or are self-employed. NRIs should inquire about alternative documentation or income proofs that can establish their financial stability and eligibility for term insurance.
4. The nominee must have a bank account in India to process the term insurance plan.

Best Term Insurance Plans for NRIs

Conclusion

In conclusion, term insurance can be a valuable financial tool for NRIs to safeguard the future of their loved ones not only in India but across the globe.

By purchasing a term insurance plan in India, NRIs can secure their loved one's financial future, regardless of geographical boundaries. These policies provide a comprehensive safety net, ensuring that dependents are protected against unforeseen circumstances. Term insurance plans in India often offer competitive premiums and substantial coverage amounts compared to similar policies available abroad. This presents NRIs with an opportunity to maximize their insurance coverage while enjoying cost-effective premiums, optimising their financial planning strategies.

Remember, term insurance plans in India can be the cornerstone of a solid financial plan for NRIs, transcending distances and providing peace of mind for loved ones.