Difference Between Term Insurance and Life Insurance for NRIs
These two sound similar, but they work differently. Don't worry, we'll explain everything in the easiest way possible so that anyone can understand and make the right choice.
What Is Life Insurance?
Life insurance is an agreement that provides your family with financial assistance after you pass away. You pay a specific amount annually or monthly; this is referred to as a "premium." The insurance company pays a set amount of money (referred to as "sum assured") to your family once you are no longer living.
Certain life insurance policies also pay you back while you are alive. These are endowment policies, money-back policies, or whole life policies. So, in short, life insurance provides you with protection as well as savings.
What Is Term Insurance?
Term insurance is the simplest form of life insurance. It provides protection but nothing else. You select a fixed duration of years, for example, 10 years, 20 years or 30 years, and if you happen to die during those years, the insurance company pays a huge amount of money to your family.
But once you survive the term, there's no coming back. That's why term insurance is also the cheapest. You can have a ₹1 crore or ₹2 crore cover at a very low premium.
Term Insurance vs Life Insurance for NRIs
If you are an NRI, term insurance and life insurance for NRIs are both accessible to you in India. You are free to purchase these policies as a regular Indian resident. Let's proceed and discuss the major differences so that you can choose the best one.
1. Why You Buy It
The reason for availing term insurance or life insurance is not the same. Term insurance is only designed to offer financial assistance to your loved ones when you die within the policy duration. There are no savings components.
Life insurance, however, provides protection as well as savings. Even if nothing untoward happens to you, you can receive some amount at the end of the policy.
So if you are looking for simple protection, term insurance is the way to go. But if you are looking to save money along with life cover, then life insurance can prove useful.
2. Plan Cost
The plan cost or the premium is significantly lower in term insurance. For instance, a 30-year-old NRI in good health can procure a ₹1 crore term insurance for as little as ₹10,000 to ₹15,000 annually.
Life insurance, however, is much more expensive. Since it includes a savings part, the same ₹1 crore cover can cost 5 to 10 times more. So, for someone looking for budget-friendly protection, term insurance is better.
3. What Your Family Gets
Under term insurance, your family receives the entire sum assured if you die within the policy term. If you survive, you receive nothing (unless you purchase a return-of-premium plan, which is more expensive).
Under life insurance, your family receives a payment on your death as well, but even if you live on, you receive a maturity amount together with potential bonuses.
This implies that life insurance returns something regardless of whether you live or die, whereas term insurance is of use only in case of death during the term.
4. Returns and Investment
Term insurance is not an investment instrument. It's all about protection. This is why there isn't any return unless there happens to be a claim.
Life insurance is a long-term investment, though. You earn returns after the term of the policy, although these returns tend to be lower than other kinds of investments, such as mutual funds or fixed deposits.
So, if protection alone is your aim, select term insurance. If you wish to save or invest, too, life insurance can accomplish that.
5. Claim Process for NRIs
The process of the claim is similar in the case of term and life insurance. In case the policyholder passes away, the nominee is able to claim by presenting the death certificate and other papers.
Even if the death occurs outside India, most Indian insurance companies will still settle the claim provided the policy was in force and proper papers are presented.
Several insurers also provide special NRI customer care services to assist with claims, so this becomes easy for your family.
6. Tax Benefits for NRIs
As an NRI, you can avail of the same tax benefits as resident Indians under the Indian tax laws. The premium you pay can be deducted under Section 80C, and the amount received by your family as a payout is typically tax-free under Section 10(10D).
Just ensure to stay current with the current rules or consult a tax professional, particularly if you are a resident in a country that taxes worldwide income.
7. Buying These Plans Overseas
It is now convenient to purchase insurance in India even if you are based abroad. You can apply online, send documents electronically, and even get yourself checked medically in your country through local diagnostic centres allied with Indian insurers.
The premiums can be paid through your NRE or NRO bank accounts. All the insurance companies, such as LIC, HDFC Life, ICICI Prudential, Max Life, SBI Life, and Tata AIA, provide policies designed for NRIs.
So, Which One Should You Choose?
Now comes the million-dollar question: which plan should you opt for?
If your priority is covering your family without overspending, then term insurance is a better option. It provides a high life cover at a very low premium, which is wonderful if you have dependents, children, or ageing parents.
But if you also wish to save and have a certain return in a few years, then life insurance can provide you with security, with some extra savings.
So, in simple terms, let's summarise:
Go for term insurance if you wish to have more protection at a lower price.
Go for life insurance if you wish to have protection as well as a maturity benefit.
Both are good, just the choice depends on what you require.
As an NRI, investing in insurance in India is a wise means of ensuring your loved ones' well-being back home. Term insurance or life insurance, whichever you opt for, both bring peace of mind and economic security.
Just remember:
Use a reliable insurer with a sound claim settlement ratio.
Keep your nominee aware.
Pay your premiums punctually.
Select a plan suiting your needs, and not merely on the advice of others.
The proper insurance policy can shield your family from financial burden, regardless of where you reside in the world.
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