Dollar or rupee? What NRIs should know before buying GIFT City insurance

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For a non-resident Indian, buying life insurance is no longer a choice between an Indian policy and one offered in their country. GIFT City has opened up a third option: dollar-denominated products that allow NRIs to buy life cover and investment-linked policies in foreign currency.

Foreign nationals can also buy such policies, while Indians can buy them via the Liberalised Remittance Scheme route.

The market is still young. Of India’s 26 life insurers, only eight have GIFT City branches, with most focusing on unit-linked insurance policies (Ulips)—which partly pay for cover and partly invest in securities—and relatively few that offer term insurance. Tata AIA Life Insurance and HDFC Life International, a subsidiary of HDFC Life, offer term plans. IndiaFirst Life plans to launch a term plan within two years, while Axis Max Life is exploring the segment.

“As part of our broader GIFT City strategy, we are evaluating opportunities across product categories, including protection-oriented solutions,” said Vaibhav Kumar, head of products, ecommerce at Axis Max Life.

The ULIP market has more options, including Global Wealth Advantage (HDFC Life), Wealth Wise (IndiaFirst Life), Smart Global Investment (Axis Max Life), Global Wealth Accelerator (ICICI Prudential Life) and Shubh Global Invest (Tata AIA).

But does a dollar-denominated policy necessarily make sense for an NRI? Not always. The right choice depends largely on which currency you will eventually need the money.

A dollar-denominated policy makes sense if an NRI and their dependents are settled abroad and their major liabilities are in foreign currency. A rupee payout could lose purchasing power.

"If you're settling abroad for good, your dependents are there, and expenses (mortgage, foreign tuition) are dollar-denominated, a dollar plan removes the rupee-depreciation risk on the payout... The rupee has drifted down roughly 3% a year against the dollar for decades, so ₹ 1 crore of cover today buys noticeably less in dollar terms 20 years out," said Raj Ahuja, co-founder of Turtle Finance. “Match the currency of your biggest future liability, not your current salary.”

What about buying a global plan from your country of residence? It may trigger tax issues.

“Overseas plans often add tax filing and reporting hassles if you become an Indian tax resident again. Moreover, global policies cost more because they provide health and life cover across multiple nations,” said Vishal Dhawan, co-founder of Plan Ahead Wealth Advisors, an investment advisory firm.

For NRIs who do not really know whether they will stay abroad or return to India, a rupee plan may be the safer default.

“India's term insurance market is far more mature, with greater pricing competition and a longer claims track record. GIFT City's insurance ecosystem is still evolving,” Ahuja said.

Tax treatment can make GIFT City products particularly interesting for NRIs.