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These traditional investment-cum-insurance products offer predefined benefits that do not depend on the insurer\u2019s future bonuses or market performance.<\/p>\n
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Their appeal is strongest for defined goals such as children\u2019s education and retirement. But buyers must weigh the certainty against relatively modest internal rates of return (IRRs), long premium commitments, and poor early-exit economics.<\/p>\n
What these plans offer<\/p>\n
Non-par plans combine life cover with guaranteed maturity or periodic benefits. Participating plans, in contrast, may pay bonuses linked to the insurer\u2019s performance.<\/p>\n
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\u201cThe principal attraction is certainty. You know what you are going to get if you survive the policy term,\u201d says Deepesh Raghaw, a Securities and Exchange Board of India (Sebi)-registered investment adviser (RIA).<\/p>\n
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\u201cIn a non-participating plan, the policyholder does not participate in the insurer\u2019s performance and does not earn bonuses,\u201d says Shilpa Arora, co-founder and chief operating officer (COO), Insurance Samadhan.<\/p>\n
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The benefits may come as a lump sum or through periodic payments. \u201cNon-participating plans offer life insurance cover along with predetermined, guaranteed benefits,\u201d says Santosh Chacko of SBI Life.<\/p>\n
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The insurer bears the investment risk that underlies these guarantees. \u201cThe investment risk is borne by the insurer, offering customers greater peace of mind,\u201d says Mohit Garg, chief strategy officer, PNB MetLife.<\/p>\n
Who should consider them<\/p>\n
These products suit investors with stable incomes, a low risk appetite and specific future goals. \u201cNon-par savings plans are best suited for individuals who want the security of life cover along with fixed returns,\u201d says Aditya Mall, appointed actuary, Generali Central Life Insurance.<\/p>\n
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Buyers aged 35\u201355 with steady incomes can use them for education, marriage and retirement goals, says Mall. Investors who already hold mutual funds or unit-linked insurance plans (Ulips) can also use them to add a guaranteed component to their portfolio.<\/p>\n
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Buyers should, however, seek certainty rather than aggressive wealth creation from these plans. \u201cWealth preservation, rather than aggressive wealth creation, is where these products fit better,\u201d says Sameep Singh, head of investment, Policybazaar.<\/p>\n
Returns may be lower than they look<\/p>\n
A headline benefit can make the return appear higher than it is. Returns are typically around 3-7 per cent for these products.<\/p>\n
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\u201cReturns of 4\u20135 per cent for a 20-year product are poor from a long-term wealth-creation perspective,\u201d says Raghaw.<\/p>\n
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Buyers must also distinguish between a benefit and a return on the premiums invested. \u201cA survival benefit is a percentage of the sum assured, not necessarily a return on your investment,\u201d says Arora.<\/p>\n
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Some products may quote attractive guaranteed additions, but these additions may not themselves earn interest. \u201cSome plans can be marketed as giving 8\u201310 per cent returns, while the actual IRR may be only around 4\u20136 per cent,\u201d says Arora.<\/p>\n
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Buyers should calculate the IRR by matching every premium payment with every future benefit. \u201cIRR can be calculated for guaranteed plans, and a buyer can do it with basic knowledge of Excel,\u201d says Arora.<\/p>\n
Prepare for a long commitment<\/p>\n
Limited liquidity is a major weakness. An early surrender can cause substantial losses. \u201cYou can get stuck once you enter this kind of product, because the exit penalty can be very high,\u201d says Raghaw.<\/p>\n
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Before committing, buyers should check the premium-paying period, surrender value and actual payment dates. \u201cDo not assume that you can stop paying after three or five years unless the policy terms actually allow it,\u201d says Arora.<\/p>\n
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The surrender value after two premiums may be around 30\u201340 per cent of the premiums paid, says Arora, and it increases as the buyer pays more premiums. Buyers should not use money they may need for emergencies. \u201cThe policy should cater to a long-term goal, while the rest of the portfolio remains liquid,\u201d says Singh.<\/p>\n
Read the illustration closely<\/p>\n
The benefit illustration should state the premium-paying term, policy term, death benefit, maturity benefit, income period and surrender value. Buyers must scrutinise the cash-flow dates because a benefit described as starting in a particular policy year may arrive only towards the end of that year.<\/p>\n
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\u201cThe difference between the last premium payment and the first cash-flow receipt can be two years, even if the illustration appears to show it as one year,\u201d says Raghaw.<\/p>\n
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Buyers should examine the insurer\u2019s claims record and compare the effective yields of similar policies. \u201cBuyers should confirm the exact maturity and death payout amounts written in the policy document,\u201d says Mall.<\/p>\n
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They should also read the exclusions and understand other policy conditions.<\/p>\n
Do not replace pure protection<\/p>\n
Buyers should not conflate the savings component and life cover with pure protection. \u201cA non-par savings plan is not a substitute for pure protection life insurance solutions,\u201d says Mall.<\/p>\n
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Separate investments and term insurance usually work better for consumers who can manage both effectively, says Raghaw. But insurance policies can offer features that investments cannot. \u201cInsurance products can provide contractual features that a pure investment product cannot,\u201d says Raghaw.<\/p>\n
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Non-par plans can also align payouts with future needs. \u201cCustomers can time the returns from these products along with their future financial needs,\u201d says Chacko.<\/p>\n
Checks before buying<\/p>\n
Calculate the actual IRR instead of relying on a headline return or benefit percentage. Check the premium-paying period and whether you can sustain every payment. Match the policy term with your financial goal, verify the death and maturity benefits, and understand exactly when the insurer will pay them.<\/p>\n
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The decision ultimately turns on whether predictable cash flows justify lower returns and limited liquidity. Non-par plans can play a role in a diversified portfolio only when the commitment matches a genuine long-term goal and the buyer retains adequate liquid savings and pure protection cover.\u00a0<\/p>\n
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