How non-participating plans by insurers work as investment option
Published by Business Standard
Abhishek Kumar's role: Quoted
Abhishek Kumar explained that payouts from these plans move closely with government bond yields. He cautioned that they may not beat inflation and offer little liquidity, and suggested risk-averse investors could treat them as part of long-term debt holdings.
What Abhishek Kumar said
What decides the payouts from non-participating insurance plans?
Payouts from these plans move closely with yields on government securities, because insurers put a large part of the premium into G-Secs. Keep in mind that what gets invested is only the premium left over once the agents' commissions have been paid. So the payout you are offered largely reflects bond yields at the time, earned on the money that remains after those commissions.
What are the drawbacks of non-participating plans?
Investors with a higher appetite for risk may not find the payouts attractive, and some of these plans may not even beat inflation over their term. They also give you little flexibility on liquidity, so the money is not easy to get at if your needs change before the plan runs its course.
Who can consider non-participating plans, and what should they check?
Risk-averse investors can treat these plans as part of the long-term debt portion of their portfolio. Before buying, I would check whether the maturity amount, once you adjust it for inflation, will actually help you meet the financial goal you are saving for. A maturity figure that looks large today may be worth a lot less by the time the policy pays out.
In our words, from what he said in the piece. General information, not personal advice.
More of Abhishek's views on insurance
The article explains non-participating life insurance savings plans, which fix the payout upfront and are drawing interest as markets turn volatile. It covers how they differ from linked and participating plans, their tax treatment, payout options, low liquidity and the checks buyers should make before signing up.
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How non-participating plans by insurers work as investment option