Simplifying Life Insurance in India
Difference Between Linked and Non-Linked Insurance
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Life insurance policies are essential as human lives have become fragile in today's fast-paced world. Securing the future of your loved ones through systematic investment is a wise option while your income stream is still stable.
In this regard, one must know that there are several life insurance policies available. Among them, linked and non-linked insurance schemes are the two broadest categories that differ majorly on the nature of returns. In this guide, you will learn the difference between linked and non-linked insurance plans.
What is Linked Insurance?
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Linked insurance policies blend investment and insurance aspects within a single plan. Policyholders buying these plans pay their premiums monthly, annually or semi-annually for a specific period, usually a minimum of 5 years.
A linked insurance plan provides reasonable returns to the policyholder if the market remains high for a few consecutive years. ULIPs, or Unit Linked Insurance Plans, are the most common type of linked insurance plans that generate regular returns in the form of dividends. To generate this income, such plans actively invest in the market to generate surplus wealth other than the life cover.
What is Non-Linked Insurance?
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Non-linked insurance schemes are those traditional life insurance policies that share no apparent relation with the stock markets. Buyers who opt for these policies are assured a guaranteed maturity return or death cover against the premium they need to pay. At times these non-linked plans are clubbed with endowment plans which guarantee additional money-back offers, an attractive feature often promoted with survival benefits.
On the other hand, if a person wishes to purchase a term plan, their family is guaranteed life cover only if the unfortunate event occurs within the policy term.
What are the Differences Between Linked and Non-Linked Insurance?
We have concisely listed the differences between a linked and non-linked insurance policy to help potential life insurance buyers make a well-informed purchase decision.
| Parameter | Linked Insurance Plan | Non-linked Insurance Plan |
| End benefit | Linked insurance purchasers receive the monetary compensation of their acquired units at the current market price as soon as the policy matures. Moreover, when the insurer promises to offer additional units post-maturity of the policy term, the investor gets surplus returns in the form of loyalty bonuses. | Non-linked insurance plans specify a guaranteed payout on the day the policy term commences. The insured person is not entitled to any additional benefits as they do not intend to participate in the stock market activities of the insurance provider. |
| Partial withdrawal | You can withdraw about 10% of your premiums paid to date to support emergency financial expenses. However, one must contact the insurance provider or read their insurance policy terms thoroughly to know the exact withdrawal limit. | The insurance buyer is only allowed to take a loan against the sum assured by the insurer. In addition, no insurance provider allows a person to withdraw a certain amount of their premiums paid for non-linked plans. |
| Investment flexibility | These plans are very flexible in terms of investment. The policyholder gets the choice-making authority on which funds the plan must invest. Thus, it is an excellent alternative to term plans if you are a moderate risk taker ready to place bets on odds related to the stock market. | The insurer allocates the funds accumulated from all the retail investors into assets of their choice. The policy buyer has almost no control over the nature of investments. |
| Transparency | While choosing between a linked and non-linked insurance policy, this factor speaks highly in favour of buying a linked policy as these plans are highly transparent. The insurer regularly sends the policyholders detailed reports on the total premiums paid and the number of units possessed. | These plans have little to zero transparency, as insurance buyers have no clue where their money gets invested. |
| Switching options | ULIP plan holders can switch their funds without additional charges. Thus if someone wants to lower their risk factor, they can request shifting their funds to debt funds from the high-risk involved equity funds. | This option is not valid for any non-linked insurance policy. |
Which Life Insurance Policy is Better for You?
As we can see, there is no particular one size fits it all plan when it comes to insurance policies. Thus, the ultimate choice depends on the potential insurance owner's budget, end goals and risk-taking mentality. For example, a non-linked insurance policy is ideal for term plan supporters who want to avoid market volatility and is content with guaranteed life coverage. Otherwise, linked plans are ideal for you if you fall into the second category and are willing to take risks and earn passive income through dividend returns.
Both linked and non-linked insurance plans come with benefits and demerits. However, as market-related linked plans are increasingly popular among policyholders, it does not mean one should overlook the brighter aspects of non-linked plans. On the contrary, the latter scheme is the best solution for anyone who prioritises their family's future over other aspirations in life.
FAQs about Linked and Non-linked Insurance
How linked insurance policies help in goal-based savings?
Can you withdraw accumulated funds in a linked insurance plan?
What are market linked insurance plans?
What are the main features of a non linked non participating insurance plan?
Important Guides related to Life Insurance
Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
