Buying pure term insurance in India to cover US estate tax risk – Some considerations

Last updated on – Nov 26, 2025

Buying a pure term insurance in India is a relatively straightforward and low cost way to avoid estate tax if you plan to keep funds in US. I have some points on this aspects as below.

Your first priority should be to reduce exposure to US domiciled investments as much as possible in a tax efficient way as possible and buy insurance for only the remaining amount above USD 60000. There are many strategies like 529, NRA to NRA gifting, etc. that should be explored first.

Once you’ve deployed all those strategies and have a final number on the US investments you plan to continue, you can first estimate estate tax impact as per the applicable rates + attorney fee & closing costs (anywhere between 5-10% of estate tax impact) . Also factor in the liquidity needed for India living expenses as the estate closing process can take anywhere upto 2 years – asides, also try to have a 2 year worth contingency fund in India in liquid investments e.g. arbitrage funds. Do also factor the 20% TCS that will apply if remitting funds to US in excess of INR 10 lacs.

In case of a very significant portfolio, remember that insurance sum assured by Indian insurers is subject to their internal underwriting limits – especially if you have any existing illness, insurers can restrict the amount of coverage so do check on that too.

As regards beneficiary remitting money for estate tax liability or kids US education, that in my view would count a s a current account transaction and subject to LRS limit of USD 250000 & some paperwork and 20% TCS it should not be an issue.

Make sure to disclose all health issues at the insurance proposal stage – one slight miss and insurance claim can be rejected.

Avoid ULIP based/variable insurance plans, WROP term plans – rigid, high cost. Stick to pure term plans. You can also buy them online on return to India. For high value plans, you’ll have to undergo medical tests.

Generally once the beneficiary informs of the death, the institution freezes the account. For brokerage accounts atleast (I dont think it is possible for 401k/IRA type accounts), one strategy can be to have spouse as a joint owner with right of survivorship – so that she can have access to the account & move the requisite funds outside the account (say to a US bank account) which can be used to discharge the estate tax liability at the time of filing US tax return.

There may still be a view to not expose spouse to all the above hassle and co-ordinating with attorney/US financial institutions/insurance co. – in that case, better to move funds away from US – do consider the Gift City as it is evolving – there is a news of PPFAS launching Gift city schemes with ticket size of USD 5000 & exposure into S&P 500. That can be a viable alternative to even Irish domiciled funds & developments in this space can be tracked by someone planning to return to India and wishing to avoid US estate tax risk.