What is Non-Linked and Non-Participating Term Insurance
While buying a term insurance plan, many of you must have heard of the 'non-linked, non-participating' phrase. Have you ever thought about what they are?
To put it simply, a life insurance plan that does not invest in the market is called a non-linked plan. On the other hand, a life insurance plan that does not earn any bonus is called a non-participating plan.
Since a term plan is a pure risk protection plan, it does not invest in the market nor earn any bonus; it is called a non-linked, non-participating term insurance policy. Here is everything you need to learn about these terms.
Concept of a Linked & Non-Linked Term Insurance Plan
| Linked Plans | Non-Linked Plans |
|---|---|
| Under a linked insurance plan, apart from the life cover, the insurer invests part of the premiums in different market-linked funds. | A non-linked insurance plan is a pure protection policy that only provides financial protection if something happens to the policyholder. |
| ULIPs are the only policies that fall into a linked insurance plan category. A ULIP invests in market-linked funds to generate profits from the market performance to provide returns to the insurer and the policyholder. | Since term insurance is a pure risk protection plan and does not invest in the market, it is often referred to as a non-linked plan. In fact, any life insurance product that does not invest is a non-linked life insurance plan. |
Concept of a Participating & Non-Participating Term Insurance Plan
| Participating Plans | Non-Participating Plans |
|---|---|
| Under the participating policy, it comes with profit-sharing benefits. Over the financial year, if a company earns profits, the insurer distributes some of the profit as a bonus or dividend to the policyholders. | The non-participating policy is a protection-oriented plan and does not earn any bonus. These plans do not provide dividend payouts and do not offer additional annual payouts. |
| Plans like endowment and money-back policies are often referred to as participating plans because these plans earn bonus declarations. | In the case of the return of premium term plan, the insurer usually refunds the premium paid towards the plan once you outlive the policy term. In fact, any life insurance product that provides a guaranteed payout at maturity is a non-participating insurance plan. |
Key Features of Non-Linked Non-Participating Term Insurance Plans
- Not Dependent on Market Performance: Non-linked plans are pure risk protection plans and do not depend on market instability. Regardless of market performance, the life cover will be delivered to the nominee when the policyholder dies. With a death benefit, you can secure your family’s financial future to help them fulfill future goals in your absence.
- Guaranteed Returns: Non-linked and non-participating plans do not earn any bonus and provide a guaranteed payout at maturity. Regardless of the profits earned by the company, the insured person will still receive this guaranteed payout at maturity. Under this plan, you’ll get guaranteed returns at low risk.
Conclusion
A non-participating and non-linked term insurance plan’s main objective is to secure the family’s financial future in the event of the policyholder's demise. While buying a life insurance product, understand your financial goals and create a diversified financial portfolio to pick the suitable policy for yourself.
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