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Difference Between Unit-Linked Plans and Non Unit-Linked Plans

Difference Between Unit-Linked Plans and Non Unit-Linked Plans
  • 20th Jun 2022 |
  • 1,659

The importance of a life insurance policy is now being taken seriously by almost everyone. This is because life has become uncertain today, and you never know what will happen next. The many incidents that happened in the past few years are making people realize the importance and necessity of insurance policies for themselves and their loved ones. Therefore, it is important to invest wisely in a comprehensive insurance policy to secure yours and your loved one’s future. However, choosing the right one that fits your financial requirements can be overwhelming.

While talking about insurance policies, it is important to understand what is linked and non-linked insurance plans and how they are different from each other. Also, you must have clarity over linked and non-linked life insurance plans to easily pick the right option for securing your future.

This article will discuss what is linked and non-linked insurance plans. And we will also discuss the key differences between linked and non-linked life insurance plans.

Non Unit Linked Insurance Plans

What are Non Unit-Linked Insurance Plans?

Also known as traditional insurance plans, the non-unit-linked insurance plans aim solely to offer financial protection to the family in case of an unfortunate demise of the policyholder or severe illness during policy tenure and as per the policy terms and guidelines.

These insurance plans are not linked to the market, and the full amount of the premium goes towards insurance coverage; they are called non-ULIP policies. The insurance company itself manages the whole portfolio, and there is no policyholder participation. Thus, it is also known as a non-participating unit-linked plan.

Insurance plans like term insurance, guaranteed savings plans, money-back policies, and other traditional insurance plans are categorized as non-unit-linked insurance plans.

As the name suggests, non-linked, non-participating policies do not take part in the insurance company’s business. You have to pay a fixed premium based on the sum assured and you receive guaranteed returns. The promised amount is paid to the nominee in case of the unfortunate demise of the policyholder.

Advantages of Non Unit-Linked insurance plans

1. These non-linked non-participating policies are not dependent on the market. Hence, the insurance cover is guaranteed regardless of the performance of the life insurance company.

2. One main difference between linked and non-linked insurance is market risk. Although the linked policies are usually handled by the professional fund managers, these are still subject to market risk. Non-ULIP policies provide low risk with guaranteed returns.

3. It guarantees a death benefit in your absence. For example, a non linked non participating life insurance plan offers the promised amount to your nominee and takes care of your family.

Unit Linked Insurance Plans

What are Unit-Linked Insurance Plans?

Also known as modern insurance plans, Unit Linked Insurance Plan is a financial tool that gives you the benefit of both insurance and investment in a single policy. In these plans, the premium paid is divided into two parts. One part goes towards insurance cover, while the remaining part is invested in market funds of the policyholder’s choice. The investment part gives returns based on fund selection and market performance.

These plans are highly flexible, allow you to choose investment options based on your risk appetite, and facilitate fund switching features. Unit Linked Insurance Plans offer a decent return. However, since a part of it is linked with the market, volatility is certainly a risk factor that should be considered beforehand. Some ULIPs offer bonuses and loyalty rewards too. Although, this depends on the insurer and the policy’s terms and guidelines.

Advantages of Unit-linked insurance plans

1. ULIPS are flexible and provide a range of options to choose from. You can invest in high, medium, and low-risk investment options according to your needs and risk-taking appetite. You can also increase your investment through top-ups, once you begin to generate more income.

2. You can opt for a rider and get additional protection by customizing ULIPs. For instance, a critical illness benefit rider can financially support your family in case of a critical disease and even act as a source of lost income. Hence, riders can increase the effectiveness of your insurance policy.

3. ULIPs offer transparency and let you monitor the performance of your policy on a regular basis. You can check the Net Asset Value (NAV) of the ULIP plan updates and track your fund’s performance.

4. Many ULIPS also come with a free-look period. One can try the scheme for 15 days and decide if they want to continue it or not. In case you’re not satisfied with the policy, you will be paid back the premium amount. (Note: Application charges might be deducted in case of return.)

5. ULIPs offer some unparalleled tax benefits such as:

  • Under Section 80C and Section 80D, you get the tax benefits on your premium payments.
  • Returns that you receive on your investments are non-taxable.
  • Partial withdrawals in ULIPs are also tax-free. Once the lock-in period of 5 years is completed, you can withdraw money without paying any tax.
  • Just like whole life insurance, in ULIP as well death coverage amount is exempted under Section 10(10D).

What is the Difference between Unit Linked and Non Unit-Linked Life Insurance Plans?

Criteria

ULIP

Non ULIP

Investment flexibility

  • . Highly flexible

  • . Allows to manage investment

  • . Gives freedom to choose investment funds of your choice as per policy

  • . Enables to invest according to your risk appetite

  • . Not Flexible

  • . Insurance company manages everything related to investment

Maturity benefit

Calculate as per the Net Asset Value (NAV) at the time of maturity or policy surrender

Pre-defined total sum assured and promise of guaranteed return at the time of opting for the policy

Transparency

All charges are upfront

Might have some hidden charges

Partial withdrawals

Allows partial withdrawal after lock-in period

Partial withdrawal is not allowed before maturity in most cases. There may be some exceptions

Switching options

Allows fund switching

Policyholder has no participation in investment

ULIPs are a modern tool of investment that save you from the worries of managing multiple financial avenues at once and enjoy a flexible investment plan with multiple benefits. You can consider all the factors such as your requirements, income generated, risk taking appetite, and switching options while making a decision. You can opt for Unit-Linked insurance plans for higher returns and additional benefits. However, if you want low-risk and guaranteed returns, non-unit linked insurance plan would be the right fit for you.

Kotak e-Term Plan

Features

  • Nominal Cost
  • Multiple Plan Options
  • Flexible Payout Options
  • Critical Illness Rider
  • Tax Savings
  • Long term Coverage

Ref. No. KLI/22-23/E-BB/492

T&C

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