Why do NRIs prefer buying term insurance in India instead of abroad?
Indian term insurance plans are tailored to the financial needs of the Indian diaspora
A close view of the financial trends among non-resident Indians (NRIs) would indicate that they tend to prefer term insurance policies offered by Indian insurers. This prompts an important question: why do NRIs find domestic term insurance plans more lucrative than international policies?
I believe the answer lies in the many challenges NRIs face if they want to purchase a life cover abroad. The lack of citizenship in the countries of residence may result in a more rigorous underwriting process as well as higher premiums. Additionally, foreign insurers also frequently may not fully accommodate the specific financial obligations NRIs have in India, like outstanding debts and providing for family back home.
Indian term insurance plans offer many advantages including affordable premiums, simple purchase procedures, huge tax savings and easy claim processes for family members.
The process of claiming payouts from a foreign insurance plan can also be complicated for surviving family members residing in India since they will have to navigate foreign legal systems and currency conversion issues. Due to these challenges, NRIs often steer clear of buying term insurance abroad.
On the other hand, Indian term insurance plans are tailored to the unique financial needs of the Indian diaspora. They offer many advantages including affordable premiums, simple purchase procedures, huge tax savings and easy claim processes for family members. I find it encouraging that the benefits of term insurance plans in India outweigh the challenges associated with international policies.
Indian term insurance premiums are highly attractive
Let’s start with the obvious. High insurance premiums are the primary reason why a majority of non-resident Indians don’t purchase term plans from overseas insurers. Despite boasting of higher insurance adoption rates compared to India, foreign nations have quite a bit of ground to cover to make their insurance plans more attractive to the Indian diaspora.
The numbers confirm this too, because the overseas insurance premiums are usually far more expensive than the premiums in India. In fact, although term insurance premiums have all been revised upward as a result of the Covid-19 pandemic, they’re still very attractive compared to overseas rates.
Indian term insurance insulates families from debt obligations more easily
Many non-resident Indians may have outstanding debt obligations such as home loans or student loans back home in India. By purchasing a term insurance plan in India, NRIs can effectively prevent the burden of these debts from falling on their families in case of their untimely demise. The payout from the term insurance plan can also be easily claimed by their families in India and used to pay off any outstanding loans.
The term insurance purchase process is simpler in India
Indian insurers have realised that adopting a digital-first approach is key to improving the country’s low insurance adoption rates. Going online has simplified the term plan purchase process, which was earlier considered to be quite cumbersome and time-consuming.
Since many insurers accept medical tests and screening done overseas, visiting the country is no longer needed to buy a term plan. In addition to this, NRIs who frequently travel to India are also opting to buy policies during one of their trips. This allows them to save on out-of-pocket expenses in connection with their health screening.
Indian term insurance plans help save tax
NRIs with taxable income in India are also increasingly opting to purchase term plans from insurers within the country due to the tax benefits that they offer.Like resident Indians, NRIs can also claim term insurance premiums to the tune of Rs150,000 in a financial year as deductions from their total taxable income under section 80C of the Income Tax Act, 1961 under the old tax regime.
Another very important reason why NRIs prefer purchasing Indian term insurance plans is section 10(10D) of the Income Tax Act, 1961.
According to the provisions of this section, the death benefit from a term plan is tax-exempt in the hands of the nominees. This enables NRIs to secure their family’s financial future without worrying about taxes reducing the payout.
The writer is Chief Operations and Customer Experience Officer, Bajaj Allianz Life