What happens to your life insurance policy and PPF if you become a foreign citizen?

If you become a foreign citizen, you can continue to benefit from the life insurance cover purchased in India by regularly paying your premium. Similarly, you can also keep your PPF account till maturity and make tax-free redemption. This Q&A explains these in more detail in response to a reader’s query.

Coverage of risk under the life insurance policy is not linked to the citizenship of the policyholder. Still, I would advise you to refer to the exclusion section of your policy documents for a better understanding.

In contrast, the health insurance policies cover only local hospitalisation and not global hospitalisation. That is why people travelling abroad are advised to buy travel insurance, which covers such hospitalisation.

As far as your PPF account is concerned, as per the Government Savings Promotion General Rules, 2018 and Public Provident Fund Scheme, 2019 a non-resident under the FEMA cannot open a fresh PPF account but continue to operate and maintain existing PPF account till its original maturity or extended maturity.

As the PPF account was opened while you were resident in India, you can continue to maintain it till its maturity and claim a deduction under Section 80C if you opt for the old tax regime. You are not allowed to extend the account beyond the current maturity date. The maturity amount cannot be freely repatriated outside India. However, you can remit up to USD 1 million under the general facility of repatriation available to a non-resident under the FEMA provisions.

You can apply for closure of your PPF account prematurely due to a change in your residential status under FEMA, accompanied with a copy of Passport and visa or Income-tax return, any time after the account has run for five years.

For such premature closure, you have to pay a penalty. Such closures are penalised by allowing lower interest, which is already credited. So the interest of one percent lower than already credited is allowed, and the excess interest credited is recovered at the time of such premature closure.

Such penalty shall apply from the account opening date for those who have not completed 15 years, and for those running on extension, the levy will be from the date of extension.

In case you do want to pay the penal interest, you are allowed to partially withdraw from the accumulated balance in the PPF account after completion of six financial years without any penalty. Since the interest credited in the PPF account is tax-free, I will strongly recommend you to retain this account at least till its maturity.

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