NRIs and life insurance The life insurance industry has been a dynamic one ever since the gates were thrown open to the private players. A lot has happened in terms of product innovation, product training, customer focus and the like. All this frenzied activity has also seen insurance companies consciously focus their attention on selling life insurance keeping in mind the customer’s specific needs. One set of customer is the Non Resident Indians (NRIs). Life insurance products with their flexibility have the potential to make for a good fit in the NRI’s financial portfolio. NRIs keep hearing of the range of insurance options at their disposal but do not have anyone giving them an objective evaluation of the same. Here, we have tried to fill that void by evaluating the life insurance options at the NRI’s disposal and how he should go about selecting the one most suitable to him. Term insurance A term plan is also helpful in case the NRI is servicing a home loan or plans to do so in the future. For example, if he has bought property in India and got it part financed by a loan, either for himself or for his dependants, then buying a term plan in India will help in fulfilling the loan obligations in case of his absence. Unit Linked Insurance Plans (ULIPs) As you would have already read in this issue of the Money Simplified, the ‘India story’ offers an opportunity to NRIs to earn above-average returns over the long term by investing in Indian stock markets. ULIPs can be the vehicle for you to achieve that kind of growth. ULIPs come in various forms like endowment ULIPs, child plan ULIPs and retirement ULIPs While ULIPs have been a rage with NRIs, we have noticed that the enthusiasm is often mis-placed. Many a times, NRIs have bought unit linked plans without understanding how they function or where their monies are being invested. We have also come across instances when unscrupulous agents have sold ULIPs without informing the NRI about the expense structure. The expenses incurred by the ULIP ultimately impact its returns- the lower the expenses the higher will be the returns and vice versa This seems like simple arithmetic, but someone needs to point this out to you. Right now, it’s not happening the way it should. As with expenses, the fund management team and style too hold significance while considering a ULIP. Also, in our view, ULIPs should not act as a pure investment vehicle but should go hand in hand with other investment instruments like mutual funds. You should strike a balance between ULIPs and other investment avenues. So ULIPs should find a place in your portfolio, but this presence should not be overwhelming and certainly not at the expense of other lucrative investment options like mutual funds for instance. How should you go about determining the investment mix? Your investment consultant is best placed to guide you in this matter. ULIPs in their various product forms have been dealt with individually below. Child plans A regular child plan comes in various options such as money-back plans, traditional endowment child plans and unit linked plans. While traditional endowment plans and money-back plans offer moderate returns that may even appear disappointing, unit linked child plans offer the NRI an opportunity to earn market-linked returns, which from a 10-15 year perspective can prove very lucrative. Depending on his risk profile and the investment tenure, the NRI can either opt for a traditional endowment or a ULIP child plan. Retirement plans Again, pension plans offer a variety of options to NRIs. Regular as well as unit linked pension plans are available. Individuals can invest in a pension plan, which suits their risk profile and long-term objectives best. Apart from the needs mentioned above, the NRI may also want to build a corpus for buying a second property or may simply want to invest the surplus that he generates on his income. Regular as well as unit linked endowment plans can help NRIs achieve this objective. The NRI can also consider buying an insurance plan in the name of his parents or his wife/children to secure their financial future. As we have highlighted in our article, it makes sense for NRIs to consider taking insurance in India for a variety of reasons. Of course, their needs may differ from the ones we have mentioned in our note here. But the rationale for considering life insurance in India, which is what we have tried to highlight, should not be lost.
|
|
|