Demand for life insurance cover in India from non-resident Indians (NRIs) has gone up, but insurance penetration among them continues to be below 4%, in spite of the devastating impact of the pandemic on human life.
NRIs, by nature, are reluctant to pay for protecting themselves and their family with insurance cover as most think their savings can be better put in investments with fancy returns, rather than keeping them ‘dead’ in insurance premiums.
The fact is that they have a wide range of investment options. Many investors are lured by the recent rally in the Indian markets, and the benchmark index Sensex has been scaling new heights every other trading session.
“Investment advisers also do their bit by prompting NRIs to put their money in schemes or funds that give handsome returns, but rarely advise them to protect their families after they are ‘gone’,” said Sajith Marakar, managing director, Consolidated Services Bureau, in Abu Dhabi.
“Also, average NRIs have a false sense of ‘perpetuity’ and do not feel the need for insurance protection. That’s why the life insurance penetration rate – calculated as first year new business premium to GDP – continues to be one of the lowest in the world.”
Term insurance protection
Shyni Philip, sales manager at Savington International, Dubai, says that NRIs should go for term insurance policies that will give protection to their families in the event of death of the insured, even if they were residing outside India and their families relocated to India.
NRIs with dependent families, or outstanding home loans in their home country, are more likely to buy term cover in India than those settled abroad.
“A protection net is essential to ensure the family members live in comfort and peace once the breadwinner is gone,” Philip said.
But investment-minded people give least preference to term insurance. This is cover that pays out on the death of a policyholder during the policy term. If the insured survives the term, the insurance does not have a maturity value, therefore premiums for term insurance are low compared with other types of policies.
Buy from India
“I would advise NRIs to buy term insurance plans from India or from their countries of residence as the prices are low,” said Consolidated Services Bureau’s Marikar.
The advantage is that NRIs need not to be present in India when they buy term insurance policies and they can buy them in the jurisdiction they live in.
With the intensifying competition on the insurance front in India, NRIs have numerous options to buy a protection or term insurance plan at lower prices. Though premium rates have gone up by 25% post-pandemic, it is still 40-50% cheaper to purchase a term policy in India.
Term life insurance plans are available for a small premium of INR500 (£4.96, $6.77, €5.78) per month to financially secure the future of the insured’s family with a large cover sum of up to INR10m (£99,260, $135,527, €115,605). Policies can be bought in person while in India or online through various portals.
They will be issued after furnishing physical medical or telemedical report from the designated medical institutions.
Forex advantage and tax benefits
NRIs also have the benefit of remitting insurance premiums from their countries of residence as the Reserve Bank of India allows treatment of such remittances as freely convertible foreign exchange.
As per the amended Foreign Exchange Management Act (Fema), if the policy is issued to NRIs in foreign currency, they will have to pay premiums from a non-resident external (NRE) or foreign currency non-resident (FCNR) account held in any Indian bank.
If the term insurance policy is issued in Indian currency, premiums can be paid through non-resident ordinary (NRO) account.
Payment of life insurance premiums is tax deductible if the sum assured is at least 10 times the annual premium.
In general, term insurance policies fulfil this requirement. An NRI with a tax liability in India can also benefit from the tax deduction on insurance premiums and claim the same in their returns.
