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 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.

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.

BJAZ-WEB-EC-01591/22