Non-par plans combine life insurance with guaranteed benefits. “They can provide returns as a lump sum or at periodic intervals,” says Santosh Chacko, president, business strategy, SBI Life Insurance. Unlike participating policies, they do not pay bonuses or dividends linked to the insurer’s profits.
Why they are gaining ground
The main attraction is visibility of future cash flows. “From the start, they offer clearly defined benefits. Such guaranteed benefits appeal to customers during periods of global uncertainty and market volatility,” says Chacko.
Returns are not linked to market movements. “Investment risk in Ulips is borne by the policyholder, whereas non-participating plans provide pre-defined guaranteed benefits,” says Chacko.
Tax treatment also adds to their appeal. “Returns are tax-free if the aggregate annual premium paid for non-Ulip plans by an investor does not exceed ₹5 lakh,” says Sameep Singh, head of investment, Policybazaar.
These plans can also lock in returns for long periods. “They can guarantee returns over 30 to 40 years, a timeframe that few financial instruments can match,” says Mohit Garg, chief strategy officer, PNB MetLife. He adds that when combined with optional riders like critical illness and accidental death coverage, they can become powerful financial planning tools.
Understand the trade-offs
The returns offered by these plans, while guaranteed, can be low, ranging from 4 to 7 per cent. “If a plan offers a return of 4 to 5 per cent over about 20 years, that is an objectively poor rate,” says Deepesh Raghaw, Securities and Exchange Board of India (Sebi)-registered investment adviser (RIA). If the aggregate annual premium across non-Ulip policies (purchased on or after April 1, 2023) exceeds ₹5 lakh, the proceeds become taxable.
Returns may also fail to beat inflation over the long term. Liquidity is another concern. “Exit penalties can be very high, making it difficult to quit these plans,” says Raghaw.
Who may find them suitable
Non-par plans plans may suit investors who want life cover with fixed returns. “A buyer who wants no ambiguity about the outcome can consider a guaranteed-return product,” says Singh.
Buyers can map them to goals such as a child’s higher education or marriage, or retirement. These plans can also balance portfolios. “Investors with existing market-linked exposure can use the guaranteed component to balance portfolio risk,” says Aditya Mall, appointed actuary, Generali Central Life Insurance. Buyers focused on wealth preservation and avoiding volatility may go for them.
“A long-term guarantee of around 6 to 7 per cent for 20 to 30 years can appeal to buyers concerned that fixed-income rates may decline over time,” says Singh.
Insurance contracts can offer features ordinary investments cannot. “An insurance-based child plan can be structured so that the insurer continues the contracted investment after the investor’s death,” says Raghaw.
Buyers who do not understand the product, its return or exit penalty should stay away. “These plans are also unsuitable for investors seeking high returns,” says Raghaw. Those who may need the money before maturity should also avoid them.
Before buying, calculate the internal rate of return (IRR). A survival benefit expressed as a percentage of the sum assured is not the same as the IRR. “A headline claim of an 8 to 10 per cent guaranteed return on sum assured can coexist with an actual IRR of only around 4 to 6 per cent,” says Shilpa Arora, co-founder and chief operating officer (COO), Insurance Samadhan.
Check benefits and payout structure
Understand the cash-flow sequence before signing. A policy may involve a premium-payment phase, a gap and then a long income stream. Confirm maturity and death payouts and when each starts and ends.
Also check how the death claim will be settled. “Under one settlement structure, the death claim is paid according to the policy schedule and the policy terminates. Under another, the nominee can continue to receive income benefits along with the maturity amount after the death claim is paid,” says Arora.
Do not underestimate surrender costs
Confirm the premium-payment term. “Buyers should stress-test their ability to pay premiums regularly throughout the premium-payment term. Do not overcommit based on current income,” says Mall.
Do not assume you can stop after three or five years without consequences. “Surrendering these policies can erode returns,” says Mall. The minimum surrender value after two premiums could be around 30 to 40 per cent of paid premiums, rising as more premiums are paid.
“Maintain separate liquid funds for emergencies rather than relying on early surrender of the policy,” says Singh.
Run these checks before buying
Compare effective yields across insurers for similar premiums and tenures. Check the insurer’s claim-settlement track record and loan-against-policy terms. Read exclusions. For tax-free returns, keep the aggregate annual premium within ₹5 lakh.
Do not treat a non-par savings plan as a substitute for pure protection. Mall suggests separately assessing the need for term insurance. Arora suggests using the free-look cancellation period to review the policy and reverse the purchase if it does not match what was promised or what you need.