The cost of living has been increasing in recent times, especially due to the COVID-19 pandemic. With inflation affecting the expenses of every household, the amount of money you can save for your loved ones also decreases. If an emergency were to take place and something unfortunate were to happen to you, your family would be left staring at financial instability.
It is imperative that you opt for term life insurance to secure your family’s financial future in your absence. Among the many terms associated with this policy, there are two terms that you, as a policyholder, should be aware of: non-participating and non-linked. What do these terms mean? Keep reading to know more about them.
What is term insurance?
One of the popular types of life insurance, a term insurance policy offers financial security to your dependents from life risks. This policy comes with a limited term, hence the name term insurance. The duration of this policy can range from 5-20 years. If you were to suddenly pass away during the term of the policy, your dependents would receive a sum assured, i.e., a death benefit. This amount can be used to manage the cost of living and other expenses as well.
What is non-participating term insurance?
In simple terms, term insurance that does not give you any bonuses in the form of dividends that the insurer has declared is known as non-participating term insurance. Your insurer is like any other company, which earns profits during a financial year. When your insurer earns profits, they will give the policyholders a part of those profits either as bonuses or as dividends. The policy wherein you, as a policyholder, get to enjoy such bonuses is known as participating life insurance. However, in a non-participating term plan, you do not get these bonuses. You are entitled to the sum assured as per the agreement between you and your insurer.
What is non-linked term insurance?
A term life insurance plan which is not linked to the market is known as non-linked term insurance. Usually, policies that are linked to the market offer returns that are dependent on the performance of the market. Depending on the volatility of the market, either the returns could be low or high. ULIPs, for example, are linked to the market. However, term insurance policies are not market-linked and thus, the amount that your dependents receive after your demise is the fixed amount mentioned in your policy.
Is a non-linked policy better?
As mentioned earlier, the performance of linked policies is dependent on the performance of the market. These policies have an investment component in them. The value of your assets is dependent on the performance of the fund. Life insurance policies, such as ULIPs, are market linked. The performance of the market impacts the value of the funds in which the money is invested.
This risk is absent in non-linked policies, such as term life insurance. Since your premium amount and the sum assured are fixed, the relation between your policy and the performance of the market is non-existent.
Also, if the insurer does not perform well during the financial year, the amount paid in bonuses could be lower than expected. The percentage of bonuses/dividends is decided by the insurer. On the other hand, non-participating insurance means not having to rely on bonuses from your insurer. As the main objective of the policy is to secure the financial future of your loved ones, the sum assured is sufficient to do that.
This is all the information related to non-participating and non-linked term insurance policies. If you wish to invest in one, you can use the term insurance premium calculator. This calculator will give you an idea of how much the cost of your policy will be based on your requirements.