What is Non-Linked Non-Participating Term Insurance

Life insurance plans come in different types. You can choose a policy based on your coverage needs. There are –

• Term insurance plans for financial protection in the case of premature death
• Endowment and money-back plans for savings
• Child insurance plans for securing the child’s financial future
• ULIPs for generating market-linked investment returns
• Pension plans for creating a retirement corpus and creating a source of regular income

One such plan is the term insurance plan which is the essence of life insurance. The policy protects your family’s financial future and gives financial assistance to your loved ones in your absence.

The term insurance plan is often called a non-linked and non-participating policy. Let’s understand what it means.

The Concept of A Non-Linked Term Life Insurance Plan

Linked life insurance plans are those that invest the premium in different types of market-linked securities/funds. There is only one plan which falls in this category which is a Unit Linked Insurance Plan (ULIP). A ULIP invests in the market-linked funds and generates returns linked to the market performance.

A term insurance plan, however, does not invest in the market. It is a pure protection policy that aims to cover only premature death. So, as the term life insurance plan does not invest in the market, it is called a non-linked plan. In fact, any plan that does not invest in the market linked funds is called a non-linked life insurance plan.

The Concept of Non-Participating Term Insurance

In a financial year, if an insurance company earns a profit, it may distribute a part of the earned profit among its policyholders. A participating plan is one that participates in bonus declarations made by the company. There are many endowment plans and money-back plans which are issued as participating plans. These plans earn bonus declarations, if any, made by the life insurance company.

Non-participating term insurance plans are not eligible for bonus (if any) declared by the life insurance Company, as mentioned earlier, term plans are protection-oriented plans. Even in the case of term plans with a return of premium option, only the premium is usually refunded back. Non-participating Term plans do not participate in bonus declarations (if any declared by the Insurer). That is why a term insurance policy is said to be a non-participating term insurance plan.

The Concept of Non-Linked, Non-Participating Term Insurance

Since a term insurance policy does not invest in the market (hence non-linked) and neither does it earn any bonus (hence non-participating), it is called a non-linked, non-participating term insurance policy.

How Does Non-Linked, Non-Participating Term Insurance Work?

A term insurance plan is called a non-linked, non-participating life insurance plan for the following two reasons –

• It does not invest the premiums in the market. As such, the benefits are not linked to market returns. You get assured benefits on death or maturity (maturity benefit is only available under the return of premium term plans) and the plans are not market-linked.
• Term insurance plans usually don’t have a saving element. The premium is used to cover the risk of premature demise. In the case of return of premium term plans, the premium includes the cost of covering the risk as well as the possibility of refunding the premium on maturity. Since there’s no saving element and term plans do not participate in the profits of the insurance company, no bonus is added to term insurance plans. Thus, they are called non-participating plans as they don’t earn any bonus.

So, in a term insurance plan, coverage is offered against premature demise. The policyholder chooses the sum assured, policy term, premium paying term and frequency. Thereafter, if the insured passes away during the policy tenure, a death benefit is paid. However, if you choose the return of premium term plans, the premiums paid over the policy tenure are refunded on maturity.

Conclusion

If you are buying a term insurance plan, buy it for protection purposes. If the investment is on your mind and you want to earn returns, you may consider choosing ULIPs for market-linked returns or endowment plans for guaranteed returns. A term plan’s sole objective is securing the risk of premature death so that you and your family are financially secure in your absence.

So, understand the true purpose of a term insurance policy before you invest. Buy suitable policies based on your financial goals and create a diversified financial portfolio.

FAQs

1. What factors should I consider when selecting a non-linked non-participating term insurance plan?

When buying a non-linked, non-participating term insurance plan, it is better to consider the following factors –

• The sum assured – it is better to choose a suitable coverage amount that would cover the financial needs of your family in your absence.
• The policy tenure – the tenure should be suitable to cover the risk of premature demise and the financial loss that it might cause.
• The premium-paying tenure – It is recommended to assess your affordability and then choose the premium-paying tenure of the policy. Usually, plans offer single, limited and regular premium options and you can choose an option that matches your affordability.
• The premium paying frequency – usually, term plans allow premium payments in the monthly, quarterly, half-yearly or annual mode. You can choose a frequency that matches your budget and affordability.
• Optional riders – term plans usually offer optional riders which can be added to the policy for additional protection. You can choose suitable riders suiting your coverage needs.

2. Can I add riders to enhance the coverage in such plans?

You can add riders to enhance the coverage in term insurance plans. There are different riders available some of which include the following –

• Accidental death benefit rider – this rider covers accidental deaths and pays an additional benefit in such cases
• Accidental death and disability benefit rider – this rider covers accidental deaths or disablements and pays an additional benefit if any of these contingencies occur
• Waiver of Premium Rider – this rider waives the future premiums if the policyholder passes away during the policy tenure but the life insured is alive. Alternatively, the rider might cover disabilities and waive the premium if the policyholder becomes disabled during the policy tenure.
• Critical illness rider – With this rider, a set of specific illnesses is included in the coverage. If the insured experiences one of these covered illnesses during the policy's duration, the rider benefit is provided.

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