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Key factors NRIs should consider before buying a life insurance policy

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There are various products in the life insurance space that NRIs (non-resident Indian) can consider buying. However, they must know the rules relating to purchasing life insurance in India and abroad.

Under the foreign exchange management act (FEMA), NRIs and people of Indian origin (PIOs) can buy a life insurance plan. This way, NRIs can buy term insurance and other life insurance policies irrespective of the country they are staying in. The premiums can be paid through an NRO bank account, NRE/FCNR bank account, or foreign currency, keeping in mind the currency mentioned in the issued life insurance policy.

However, Aatur Thakkar, co-founder and director, Alliance Insurance Brokers, said, “To buy life insurance, NRI’s should check the eligibility criteria and then, by comparing the various policies online, should choose reliable insurance. They should clearly understand the medical examination procedure and various tax laws in force in India and its location where the person is residing. One should check for tax implication at all three stages of the policy life cycle – investment, accommodation, and maturity as it is one of the key factors while investing the life insurance, for an NRI.”

Policy cost: NRIs must do proper research before buying a policy. They should assess the policy cost by checking whether it will be cheaper to buy a policy in the home country or abroad.

Medical examination cost: NRIs can buy a term life insurance policy abroad. However, if they do so, they will have to undergo a medical examination abroad and send the report to the insurer in India. In that case though, they will have to bear the medical examination costs. In contrast, if they buy the policy in India, they won’t have to pay additional medical examination cost.

Ankit Agrawal, chief executive officer and co-founder, InsuranceDekho, said, “If the individual is outside India, for example, in UAE or Singapore, then insurers such as Tata AIA Life Insurance Company Ltd and HDFC Life Insurance Company Ltd can only offer the policy if the NRI is willing to get the medicals done at his own cost, which is generally very costly.” Hence, if NRIs buy the policy during their stay in India, they will not be incurring the additional medical examination cost out of their In India, the insurer generally bears the costs of medical examination.

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Taxation: When you buy term insurance in India, you get several benefits from a policy. Usually, the treatment for premium paid, maturity or death benefit is tax-free income under India’s income tax rules. It is tax-free under sections 80C and 10(10D) of the IT Act, subject to terms and conditions. However, NRIs may have to pay tax on income received abroad. The prevailing tax rules abroad decide the foreign income’s taxability. Therefore, NRIs must look at tax provisions in the country of residence. Thakkar said, “If NRIs provide the valid Form 10F and Tax Residency Certificate (TRC), then there will be no deduction of Tax at Source (TDS).”

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