ULIP for NRI in the USA

What is a ULIP for NRI in the USA?

ULIP for NRI in the USA is a multi-functional insurance product where an NRI gets the features of both life insurance and an investment plan. Thus, as an NRI, if you invest in ULIPs, you get to cover your loved ones under a life insurance cover while potentially growing your corpus for the longer term through investments in the Indian market. 

While one portion of its premium provides you with life cover, depending on the insurer of your choice, you may align your goals and allocate the rest to equity, debt, hybrid, or balanced funds. 

Investors who prefer ULIPs typically invest in one to meet long-term goals such as retirement planning, funding for children’s education, and providing for other important life events. 

Now you may wonder, “Does ULIP come with a minimum lock-in period?” Here, you must note that even as an NRI, like a resident of India, your investments in ULIPs stay locked in for at least 5 years. It helps to avoid any unnecessary withdrawal, disrupting your long-term plan. Thus, it creates a disciplined investment to benefit from the market and compounding.

How Does a ULIP Work?

ULIP for NRI in the USA, at the core, work the same as it does for an Indian investor. You have already noted that you must pay a premium regularly, which gets divided between life coverage and investment. Here, concentrating on the investment part, you can select what portion of your investment goes into your chosen fund type. 

Apart from that, insurers also allow you, as an NRI based in the USA, to switch between funds throughout the policy tenure if your risk appetite or financial goal changes. The return from your investment in the underlying funds of ULIPs depends on the Net Asset Value (NAV). 

Appointed skilled fund managers manage your investment and aim for higher returns with efficient allocation through analysis and research. Partial withdrawals are typically allowed after the lock-in period, as per the policy terms and condition. The exact withdrawal rules may vary across insurers.  

Upon a full withdrawal, you get the accumulated Fund Value as the maturity benefit, but your insurance cover ends. If a ULIP investor, keeps the plan active and if something happens to them, their beneficiaries receive the sum assured and the value of units held in the plan.

Who Can Invest in a ULIP?

After understanding the working of ULIP for NRI in the USA, you must understand the requirements that allow you to invest in ULIPs in the Indian market. With a clear understanding, you can invest smoothly and enjoy policy cover and potential growth:

• Eligible NRIs residing in the USA can invest in NRI ULIP plans, but are subject to insurer acceptance and applicable regulations

• NRI individuals in the USA who satisfy the insurer's age and underwriting requirements

• An NRI investor completing KYC with a valid passport, with proof of address overseas and in India and PAN where applicable.  In case the customer does not have a PAN, Form 97 along with a declaration in lieu of PAN can be submitted.

• To start an ULIP investment as an NRI in the USA, an individual must also have an NRE (Non-Resident External) or NRO (Non-Resident Ordinary) account with an authorised bank in India.

• Investors meeting applicable FEMA and regulatory requirements for NRI investments are also eligible for a ULIP. Tax benefits^#, if any, are subject to prevailing tax laws and may change from time to time. Please consult a tax advisor for personalized guidance.

Can NRIs Living in the USA Buy ULIPs in India?

ULIP for NRI in the USA is available to purchase and usually must align with the underwriting guidelines of an insurer, applicable Indian regulations and country-specific requirements. However, not every insurer in the Indian market may issue ULIPs to applicants from every overseas jurisdiction because regulatory obligations differ across countries.

Before issuing a unit-linked insurance, insurers typically assess factors such as the insured's current country of residence (i.e. the USA), age, etc.

For example, an NRI in the USA, upon attaining the age of 18, can invest in it and depending on the insurer; the highest entry age is generally between 55 and 65 years. 

For example^*, an NRI in the USA who meets the insurer’s minimum age and underwriting criteria can apply for a ULIP. Maximum entry age and other eligibility conditions differ across insurers and may change over time.

^* Eligibility is subject to the insurer’s underwriting guidelines and prevailing regulatory requirements. Please refer to the latest policy documents for applicable criteria.

Insurers may also consider factors such as their financial profile, source of funds and overall insurability. Depending on the policy terms, KYC and additional declarations or supporting documents may also be requested from US-based applicants. As basic requirements and documentation may vary, NRIs must review the insurer's latest guidelines before applying.

Country-Specific Compliance
 

Aside from the standard application requirements, US-based NRIs may need to fulfil additional regulatory and tax compliance requirements, including:

• ULIP for NRI in the USA may require you to complete and sign the FATCA declaration (Foreign Account Tax Compliance Act). This is generally mandatory for investments by NRIs residing in the USA. 

• You may also need to declare your Tax Identification Number (TIN) and tax residency details through the FATCA/CRS self-certification, wherever applicable. 

• As an NRI in the USA, you may also need to fill out a foreign residency/ NRI questionnaire to verify your overseas residence and tax status. 

• Insurers may also impose country-specific underwriting restrictions or decline an application from certain jurisdictions in the USA due to regulatory obligations. Therefore, confirm whether your chosen ULIP is available to US-based NRIs before applying.

• Apart from complying with FATCA and CRS requirements, NRIs residing in the USA should also consider the U.S. federal tax treatment of ULIPs. Whether an Indian ULIP qualifies for favourable tax treatment depends upon whether it satisfies the definition of a life insurance contract under Section 7702 of the U.S. Internal Revenue Code (IRC). Therefore, NRIs should evaluate both Indian and U.S. tax implications before investing.

What are the Types of Funds Available in ULIPs?

As you have understood the basics of ULIPs, you may look for the types of funds available in ULIP for NRI in the USA. Understanding the fund types in detail assists you in aligning your risk-taking capability, assessing their return potential, and thus, you can make an informed decision:

1. Equity Funds

As the name implies, these funds primarily invest in company stocks listed in the Indian share market and equity-related instruments. Due to being linked directly with the stock market, their valuation may fluctuate due to short-term market swings. Therefore, as an NRI investor in the USA, you must have a higher risk appetite. 

However, with a longer investment horizon, such funds may generate higher returns, fueling your long-term goals. 

2. Debt Funds

Debt funds in ULIPs focus on safer securities compared to equity funds. Underlying securities of such funds are usually bonds, government securities, debentures, etc. As they are usually less volatile compared to company stocks, ULIPs with such funds are generally attractive for conservative investors. 

Investors with low risk appetite and looking for stability with comparatively lower returns than equity may find such a fund type in a ULIP suitable.

How to Buy a ULIP for an NRI in the USA?

After noting the key benefits, required documents and other aspects of ULIP for NRI in the USA, you must note the process to buy one. Secure a cover for your family and invest in wealth generation with ULIPs by following the methods described below: 

1. Choosing the Right ULIP

Begin by identifying your financial objectives. Determine whether you are planning for a retirement corpus, to fund your children’s education or for any other long-term wealth creation. You must factor in your investment tenure (apart from the lock-in of 5 years) and the level of risk you can bear.

For example, with a higher risk appetite, you may choose a ULIP with equity funds for potentially higher wealth accumulation. Compare features like policy and premium payment term, fund-switching facility, charges, and available riders and finalise a ULIP that aligns. 

2. Premium Payment Options

Insurers typically allow NRIs to pay ULIP premiums through online channels using eligible NRE or NRO bank accounts. However, they are subject to the insurer's accepted payment modes, and you must enquire about them before investing. Premiums of ULIP for NRIs in the USA are also available with multiple premium payment options.

Depending on the insurer and the policy, you may choose a single premium option. Also, adding to your feasibility, you can pay premiums monthly, half-yearly or annually.

What are Some Tax Considerations for NRIs Investing in ULIPs?

As an NRI living in the USA, apart from growth through investments and insurance coverage, you can increase savings through tax considerations under the Indian Income Tax Act. By investing in a ULIP for NRI in the USA, you get the following tax benefits^#:

• While filing your Income Tax, you can claim a deduction of up to ₹1.5 lakh in a tax year on the premium of ULIPs under Section  123 read with Schedule XV of the Income-tax Act, 2025 (corresponding to Section 80C of the Income-tax Act, 1961), subject to the prescribed conditions of the sum-assured ratio. 

• The maturity amount you receive can be tax-exempt under Section 11 read with Schedule II of the Income-tax Act, 2025 (Corresponding to Section 10(10D) of income tax act, 1961) if the prescribed conditions are met. For ULIPs issued before 1 February 2021, maturity proceeds are exempt from tax, subject to the prescribed premium-to-sum assured conditions (20% for policies issued before 1 April 2012 and 10% for those issued on or after 1 April 2012). For ULIPs issued on or after 1 February 2021, exemption is available only if the aggregate annual premium across all ULIPs does not exceed ₹2.5 lakh and the premium does not exceed 10% of the actual capital sum assured.

• If they do not qualify for this exemption, the maturity amount is taxed as Long-Term Capital Gains under Section 198 of the Income Tax Act, 2025 (corresponding to Section 112A of the Income Tax Act, 1961) at 12.5% on gains exceeding ₹1.25 lakh in a tax year, including TDS where required. 

• Death benefits received by the nominee are completely exempt under Section 11 read with Schedule II of the Income-tax Act, 2025.

• Where the deduction under Section 123 is available only under the Old tax regime, eligible taxpayers should evaluate the regime most beneficial to them before filing their return of income.

• NRIs who are tax residents of the United States should separately evaluate the U.S. tax treatment of their ULIP. If the policy qualifies as a life insurance contract under IRC Section 7702, the death benefit is generally tax-free under IRC Section 101(a)(1), while surrender or maturity proceeds are generally taxable only to the extent they exceed the premiums paid under IRC Section 72(e).

• It is advisable to obtain professional tax advice from a qualified US tax consultant to determine the tax implications and compliance requirements, if any, arising under the applicable tax laws of the United States.

How to Choose the Right ULIP as an NRI?

Before investing in the right ULIP as an NRI, you must assess your financial goal, investment horizon, and overall risk-taking ability. Evaluate and choose an appropriate fund type, flexibility to switch funds and applicable charges before finalising your ULIP purchase. Comparing multiple funds also helps clarify which one aligns best with your goal.

What are Some Factors to Consider Before Investing in ULIP Plans? 

Before selecting a ULIP, evaluate the following factors to make an informed decision:

• Define whether your goal is long-term, such as retirement planning, children's education, wealth creation, or legacy planning or a shorter one.

• Choose a policy tenure that matches your long-term or short-term planning.

• Review the available fund options (e.g. equity or debt) and assess whether you can opt for high-risk equities or low-risk debt funds. 

• Compare applicable charges, including premium allocation, fund management, and policy administration charges.

• Assess the plan's features, riders, and eligibility conditions before making a final decision.

Conclusion

A ULIP for NRIs in the USA can be an effective way to combine life insurance protection with long-term wealth creation through a single financial solution. Along with providing financial security for your loved ones, it allows you to invest in equity, debt, or balanced funds based on your financial goals and risk appetite. 

Over time, this can help you build a disciplined investment portfolio while staying protected. Before investing, carefully review the policy's eligibility criteria, charges, fund options, and terms and conditions, and compare different plans to find one that best suits your needs. If you are looking for a comprehensive solution, HDFC Life ULIP plans offer a range of options designed to support the long-term financial goals of NRIs.

Note: 

If assessee has opted for Old tax regime, assessee shall be eligible to claim deduction under Chapter VIII of the Income Tax Act, 2025 (corresponding to chapter VI-A (like Sections 80C, 80D, 80CCC, etc) of the Income Tax Act, 1961). If assessee has opted for New tax regime then only few deductions under Chapter VIII are available, specifically under Section 124(1) & (2), Section 125(2), and Section 146 of the Income Tax Act, 2025 (corresponding to Chapter VI-A such as Sections 80JJAA, 80CCD(2), 80CCH(2) of the Income Tax Act, 1961) are available.

ARN - ED/09/26/38980