Archive / Investment Adviser (Level 2) / Life Insurance Products

nism-series-xb-servicing-foreign-life-insurance-lrs[ INVESTMENT ADVISER (LEVEL 2) ]

Mr. & Mrs. Gupta hold US life insurance policies with a sum assured of USD 1 million each. After becoming residents in India, how can they legally service these existing foreign policies?

[ A ]They can service the policies by paying premiums either from their US rental income account or by remitting funds from India under the Liberalised Remittance Scheme (LRS) within the USD 250,000 annual limit[ CORRECT ]

[ B ]They are legally forced to surrender the policies because Indian residents cannot hold foreign life insurance

[ C ]They must assign the policies to Life Insurance Corporation of India (LIC) within 30 days of arrival

[ D ]They must convert the policies into high-premium Indian ULIP contracts

Takeaway

The Guptas can service their existing US policies using offshore funds or by remitting money from India under the LRS quota of USD 250,000 per financial year, so option A is correct.

Derivation

Indian residents are permitted to continue holding foreign life insurance policies that were validly purchased while they were non-resident; FEMA does not require surrender or forced assignment of such policies on return to India. Premiums can be paid either from remaining offshore income (such as the US rental income account) or, if funds must move from India, through the RBI's Liberalised Remittance Scheme, which caps outward remittances at USD 250,000 per financial year for permissible current and capital account transactions including insurance premiums. This tests knowledge of the practical FEMA/LRS mechanics that let NRIs keep pre-existing offshore contracts running after they become resident.

Why the others fail

B — They are legally forced to surrender the policies because Indian residents cannot hold foreign life insurance

FEMA regulations explicitly permit Indian residents to continue holding foreign insurance policies that were validly acquired while they were non-resident.

C — They must assign the policies to Life Insurance Corporation of India (LIC) within 30 days of arrival

There is no legal requirement or administrative mechanism to assign a foreign life insurance policy to a domestic insurer such as LIC.

D — They must convert the policies into high-premium Indian ULIP contracts

Converting existing foreign policies into Indian ULIP contracts is neither legally mandated nor operationally feasible across two separate regulatory jurisdictions.