Should NRIs Invest In Insurance Policies In India?

Life Insurance- Endowment or Term?

If you have close dependent family members in India, it makes sense to invest in a life insurance policy. Foreign Exchange Management Act (FEMA) allows NRIs and People of Indian Origin (PIOs) to buy a life insurance plan in India for the needs of their family.

While the size of the cover depends on your family's lifestyle and needs, it is always good to purchase a term insurance policy for this purpose as it does not make sense to purchase an endowment policy or ULIP that clubs savings and insurance. This is because these come with smaller life cover, low returns, and larger premium payments.

If your intention is to save there are plenty of options in the Indian market alone. You can even try your hand at saving options in the country of residence.

When it comes to buying a life insurance cover for your family, term insurance will do the job best.

Note that if you family resides with you, it is best to purchase a term insurance in the country of your residence and look for pure investment options in India instead.

How can an NRI buy an insurance policy in India?

The NRI does not need to fly to India to purchase it. It can be done online, instantly. However, sending medical reports over to India to complete the formalities may require incurring additional costs.

However, if you reside in a major city, there are chances that the insurance company has an international branch that you can visit to complete the documentation formalities.

Note that the country of residence is important in life insurance policies. The insurance company needs to know if you live in a country which is prone to civil war or epidemics and whether or not the profession you are in is life-threatening to decide the premium amount.

The premium for the policy can be paid online through an NRO bank account or NRE/FCNR bank account depending on the currency in which the policy is issued to you.

Should you invest in ULIPs?

In simple terms, Unit Linked Insurance Policies are a mix of life insurance and mutual funds. The proceeds towards a ULIP goes partially into life insurance and the rest is invested in equity based on your risk appetite.

While NRIs holding an Indian passport can invest in these, it is ideal that you don't for four reasons:

1. These are not very flexible. You have limited options in the types of funds you can invest in and they come with a lock-in period of 5 years. You can invest in mutual funds in India instead. India being an emerging economy gives you a better chance at gaining higher returns on your investments (especially if you choose equity-linked MF) and you can choose from a wider range of products and fund managers. Additionally, if you are looking to save as well as buy a life cover, buy a term insurance policy and start a SIP with a MF house in India to get the most of both.
2. Tax filing and reporting could get complicated based on your country of residence as ULIPs invest in the Indian markets. While these are popular among Indian residents for their tax saving feature, you may have to report your earnings as 'investments made abroad' in your country of residence and in turn lose on earnings you make.
3. ULIPS comes with higher fees and charges.
4. If you looking for life insurance cover, this will be an expensive one (in terms of premium) with a relatively smaller cover that a term insurance policy can give your family.