Term or Whole Life? What Canadian NRIs Should Choose in India

What is a term plan?

A term insurance plan is a protection-oriented life insurance plan which provides coverage for a set period (policy term).. If the life assured dies within the policy term, death benefit is paid.

Term plans usually don’t have any maturity benefit. However, if NRIs choose the return of premium option, they can get their premiums refunded on maturity.

Term Plan Benefits

Some of the benefits of term insurance plans are as follows –

1. Financial security

   Term insurance plans aim to provide financial security to your family in your absence. If the life assured passes away, the family can incur a considerable financial strain, especially if the life assured was also its breadwinner.

   The death benefit offered by a term plan can alleviate the family’s financial strain. It can give them corpus to meet their lifestyle expenses and also fulfil their financial goals.

   Moreover, if the NRI has any liabilities back home, the death benefit can be used to clear them without affecting the family’s finances.

   For NRIs a term insurance plan can prove to be a good choice.

   
   

2. Low premiums

   Term insurance plans have low premiums, which allow NRIs to opt for an optimal sum assured without a considerable pocket pinch.

   
   

3. Choice of riders

   Term plans offer a range of optional coverage features called riders. With these additional benefits, called riders, NRIs can enhance their coverage per their needs.

   
   

4. Tax benefit

   There is a tax benefit on the premium paid, too. Life insurance premiums qualify for a tax deduction under Section 80C up to ₹1.5 lakhs³, in case of the old tax regime. For NRIs having an income in India, this deduction can help in bringing down their tax liability.

   Furthermore, the death benefit is also tax-free,⁴ which adds to the tax benefits of term plans.

   
   

5. What is a whole life policy?

   A whole life policy is a life insurance plan which runs till the life assured reaches 99 or 100 years of age. It offers a death benefit if the life assured passes away during the policy tenure. However, if the life assured happens to survive the entire policy term, the maturity benefit is paid.

   
   

Whole Life Plan Advantages

The benefits of a whole life insurance policy are as follows –

1. Lifelong coverage

   As stated earlier, whole life plans run till the NRI reaches 99 or 100 years of age. This provides lifelong coverage and increases the scope of financial security that the policy offers.

   
   

2. Corpus creation

   Whole life plans usually have a savings element. If the NRI survives the policy tenure, they would receive a maturity benefit that they can use to fulfil their financial goals. For instance, if the NRI is looking to build a financial corpus that supports their loved ones after them, the maturity benefit from a whole life plan can help them achieve this goal.

   
   

3. Freedom of choice

   You can choose from whole life endowment plans as well as ULIPs, giving you the flexibility to choose a plan that best aligns with your financial needs. If you want to save and create a stable corpus for your loved ones, you can choose endowment plans that run whole life. On the other hand, if you want to get exposure in the Indian markets, whole life ULIPs can be the right choice.

   
   

4. Tax benefit

   Whole life plans also offer the same tax benefits as term plans. The premiums paid are tax-free under Section 80C up to ₹1.5 lakhs³ while the death benefit is also tax-exempt⁴. Moreover, you can also enjoy tax exemption on the maturity benefit received, subject to specific terms and conditions, under Section 10(10D)³. As such, whole life plans allow NRIs to create a tax-efficient corpus for their financial goals.

   
   

Term vs Whole Life – A Comparative Analysis

Here’s a quick comparison between term and whole life insurance plans –

FAQs

1. What is the main difference between term insurance and whole life insurance?

   Term insurance plans cover you for a specified tenure, like 20 or 30 years. However, whole life plans do not have a definite tenure. They cover you till you reach 99 or 100 years of age (depending on the plan selected).

   
   

2. Do term plans offer bonus additions?

   No, term plans are protection-oriented life insurance plans that do not offer bonus additions.

   
   

3. Will term and whole life plans cover death in Canada?

   Life insurance plans, including term and whole life plans, cover death anywhere in the world. As such, if you buy a policy in India and pass away in Canada, a valid claim can be made on your life insurance plans.