Most NRI families hold life insurance policies in both India and their country of residence. Coordinating these policies in the overall estate plan — beneficiary designations, claim mechanics, tax treatment — is one of the highest-leverage planning actions available.
Life insurance is one of the most common pillars of estate planning for NRI families. The Indian-side policies (often from LIC or private insurers like HDFC Life, ICICI Prudential, Bajaj Allianz) are typically taken during the NRI's pre-emigration years or maintained through NRI-friendly products. The foreign-side policies (term insurance from US/UK/Gulf insurers) are taken during the NRI's working years abroad.
Each set of policies follows different beneficiary, tax, and claim rules. The mechanics interact with the Will, with the broader estate plan, and with the family's overall financial security.
Coordinated planning of all these policies — particularly their beneficiary designations and the claim mechanics for cross-border situations — can produce substantial efficiency gains and avoid post-death friction.
Before the 2015 amendment to the Insurance Act, 1938, nominee status under an Indian life insurance policy was 'beneficial' only for the purposes of receiving the policy proceeds — beneficial ownership was determined separately under the Will or by intestate succession.
The Insurance Laws (Amendment) Act, 2015 introduced the concept of 'beneficial nominee' — where the nominee is a specified close relative (parent, spouse, child), the nomination is more than administrative; it confers beneficial ownership. The nominee receives the policy proceeds and is the beneficial owner.
For non-close-relative nominees (everyone else), the previous position continues — the nominee receives the proceeds for the benefit of the estate, with beneficial ownership determined by the Will or intestate succession. This bifurcation matters for estate planning.
Where the beneficial nominee structure applies (e.g., spouse named as nominee), the policy proceeds pass directly to the spouse outside the Will. The Will's provisions for life insurance are then redundant — the beneficiary designation governs.
Where the nominee is not a beneficial nominee (e.g., a sibling, a friend, a trust), the proceeds enter the estate and pass per the Will. The Will should specifically address insurance proceeds in this scenario.
For estate planning consistency, we recommend aligning insurance nominations with the Will's overall intent. If you want the proceeds to go to your spouse, name her as beneficial nominee. If you want the proceeds to enter a trust for your children, structure the nomination accordingly.
Foreign insurance policies (US, UK, Gulf-issued) generally allow a binding beneficiary designation that overrides the Will. The mechanics differ by country and insurer.
US-issued term life insurance: the designated beneficiary receives the death benefit directly from the insurer, outside the probate process. The Will's provisions for the policy are typically irrelevant if a valid beneficiary is designated.
UK-issued policies: similar mechanics — the designated beneficiary or trustee (where the policy is held in trust) receives the proceeds outside the estate. Many UK policies are held in trust specifically to avoid inheritance tax inclusion.
Gulf-issued employer-provided cover: the employer's policy typically defines the beneficiary, often the employee's designated nominee from HR records.
In the UK, holding life insurance in a trust (discretionary or flexible) is the standard way to keep the policy proceeds outside the deceased's estate for IHT purposes. Held in trust, the proceeds reach the beneficiaries free of the 40% IHT charge.
This is one of the highest-leverage planning actions for UK-resident NRIs with substantial term insurance. Trust deeds for this purpose are typically provided by the insurer at no extra cost — the policyholder simply needs to execute and lodge them.
For NRIs with US-issued policies: while US estate tax structures differ, the equivalent concept — irrevocable life insurance trusts (ILITs) — serves a similar purpose. Most US-based NRIs with substantial estates should consider an ILIT.
In India: life insurance proceeds received on the death of the insured are generally exempt from income tax under Section 10(10D) of the Income Tax Act, subject to certain conditions on policy premium-to-sum-assured ratios.
In the US: life insurance death benefits are generally income-tax-free to the beneficiary. They may be subject to estate tax if the deceased had 'incidents of ownership' over the policy (which is why ILITs are used for tax-efficient ownership).
In the UK: proceeds paid to a trust (rather than the estate) are not subject to IHT on the deceased's death. Proceeds paid to the estate are within the IHT-able estate at the death value.
Cross-border situations require careful planning. A US-issued policy on an NRI's life with an Indian-resident beneficiary may involve both US and Indian tax considerations.
Where an NRI dies with policies in multiple jurisdictions, claims must be made in each. The death certificate (with relevant translations / apostille / embassy attestation as required) is the principal document.
Indian insurance claims are typically processed in 30-90 days after submission of complete documents. NRI beneficiaries can receive payouts in foreign currency through bank-channel remittance or, for Indian-resident beneficiaries, in INR to a domestic account.
Foreign insurance claims have their own timelines. US claims typically settle in 30-60 days. UK claims similar. Gulf claims can be faster for employer-provided cover.
Most working NRIs benefit from substantial term life cover, particularly during peak earning years and especially while there is a mortgage and dependent family. The general guidance: term cover of 10-15x annual income.
For NRIs in their 30s and 40s, term insurance is typically the most efficient form. Whole life and ULIPs serve different purposes (savings element, investment-linked returns) but are not the most efficient pure protection.
Cover should be reviewed as life circumstances change. Marriage, birth of children, additional property purchases — each typically calls for increased cover. Coverage should be allowed to wind down as dependents age out, mortgages are paid, and the estate matures.
Effective coordination involves several aspects: (a) total cover level appropriate to the family's needs; (b) beneficiary structure aligned with the Will's intent; (c) ownership structure appropriate to the tax position (trust ownership where IHT/estate tax relevant); (d) liquidity at the right level to fund any estate tax obligations or family transition needs.
We routinely review the entire insurance picture as part of NRI estate planning engagements. Many clients are surprised to find their cover is structured inefficiently — proceeds going to the estate when they should go to a trust, or beneficiary designations outdated by years.
A coordinated update — typically a couple of hours of work with the insurer and the family — can significantly improve the post-death financial position of the family.
Vikram and Aarti Mehta, both 47, live in London. Indian-origin, UK citizens with OCI status. Estate: London home (£1.5m), UK ISAs and investments (£800k combined), pensions (£500k combined), Mumbai flat (₹3 crore), Indian financial assets (₹1.2 crore).
Life insurance: each holds an Indian LIC policy (sum assured ₹50 lakh each, taken pre-emigration), each holds a UK term insurance policy (£800,000 each, taken when purchasing the London home).
Estate planning recommendations: Indian LIC policies — update beneficial nominees to align with Will (spouse as primary). UK term policies — placed in trust for the benefit of children, removing £1.6 million from the IHT-able estate. Total IHT saving on the trust transfer alone: £640,000 (40% of £1.6 million).
Additionally: UK Wills drafted with explicit IHT structuring, Indian Will under Section 63 ISA covering Indian assets, beneficial nominations on Indian financial assets aligned.
Error one: outdated beneficiary designations. NRIs who took policies decades ago often have nominees who are no longer the intended beneficiaries (estranged spouses, deceased relatives, friends who are no longer close).
Error two: UK or US policies in personal name without trust ownership. The proceeds are within the IHT/estate tax-able estate, defeating the protective purpose of the cover.
Error three: under-insurance. Many NRIs have policies taken years ago when their financial circumstances were modest; current obligations are not adequately covered.
Error four: failing to coordinate Indian and foreign policies. The two are typically planned separately, leading to inefficient structures.
NRI life insurance is one of the easiest areas to optimise in estate planning. The premiums are typically modest, the planning interventions are clean, and the impact on the family's post-death position is substantial.
Our standard practice is to include an insurance review alongside Will drafting — confirming policies are appropriate to the family's needs, beneficiary designations align with the Will, ownership structures match the tax position, and overall cover level is right.
If you have not reviewed your insurance designations in the last three years, please do so. The exercise typically takes a couple of hours and addresses what is often the largest non-real-estate asset in the family's financial picture.
Updating Indian life insurance nominations: typically done through the insurer's online policy portal or by filing a Form 16 (or equivalent) with the insurer's office. The process takes a few minutes online; the insurer's confirmation arrives within a few days.
Updating US/UK/Gulf insurance beneficiary designations: each insurer has its own form (online or paper). The update is typically effective immediately upon submission, though the insurer's confirmation may take a week or two.
Updating employer-provided cover: this requires coordination with the employer's HR department. Many employers provide an annual benefits-update window during which all designations can be reviewed and updated.
We recommend a periodic 'beneficiary audit' — every 2-3 years and after any major life event — covering all policies. The audit takes a few hours but addresses what is often the largest non-real-estate financial asset for working NRI families.
Most NRI families benefit from substantial term life cover during peak earning years. The general guidance: total term cover of 10-15x annual income, structured so that the death benefit covers all outstanding mortgages, provides for the family's lifestyle for 10-15 years, and funds children's education through completion.
Term insurance from Indian insurers can be taken by NRIs, with premium-payment from NRE/NRO accounts. Sum assured is typically 1-3 crore for executive-level NRIs.
Indian term insurance combined with foreign term insurance (from US/UK/Gulf insurers) typically provides comprehensive cover. The Indian policies pay in INR; the foreign policies in the foreign currency. Coordination ensures appropriate diversification across currencies and avoids over-insurance.
Beyond life insurance, NRI families should consider health insurance and critical illness cover as part of their overall protection architecture. Each addresses a different risk:
Term life insurance — protects the family against the income loss from the insured's death.
Health insurance — covers medical treatment costs during illness; particularly important as healthcare costs continue to rise.
Critical illness cover — provides a lump-sum payment on diagnosis of specified serious illnesses, allowing the family to fund treatment and lifestyle adjustments without using long-term savings.
A comprehensive protection plan typically combines all three across both Indian and foreign insurers, structured to provide cover during peak earning years and during specific risk windows. Coordinating these is part of our standard NRI engagement.
When the time comes for life insurance claims after the NRI's death, the family's experience depends heavily on the preparation done in advance.
With well-organised paperwork (policies catalogued, beneficiary designations current, contact information for each insurer accessible to the family): claims can typically be processed within 30-90 days across multiple insurers.
Without organised paperwork: families often spend weeks just identifying which policies exist. Insurance policy retrieval from old files, employer HR departments, financial advisor records — all takes time during a difficult moment.
A simple annual practice: print a one-page summary of all insurance policies with policy numbers, sum assured, beneficiary designation, and insurer contact details. Update annually. Keep in a known location.
Two practical points often overlooked: first, the bank or AMC may treat life insurance proceeds differently from other inheritance for FEMA repatriation purposes — typically more flexibly. Confirming this with the bank in advance can speed up repatriation of large insurance payouts.
Second, where the policy is held by an NRI in foreign currency (some NRI-friendly products allow this), the death benefit is paid in foreign currency directly, simplifying repatriation entirely. For NRI clients with substantial protection needs, foreign-currency NRI policies are worth considering.