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Understand the difference between unit-linked insurance plans & non-linked plan. Decide which one is advantageous for you with a comparison table
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. In addition, the many incidents that occurred in the past few years are making people realize the importance and necessity of insurance policies for themselves and their loved ones.
Therefore, investing wisely in a comprehensive insurance policy is essential to secure 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 essential to understand what is non-linked insurance plan and how it differs from linked insurance plans. Also, you must have clarity about what is a non-participating insurance plan to pick the right option for securing your future quickly.
This article will discuss what is a non-linked insurance plan and a linked insurance plan. And we will also discuss the critical differences between the two.
Also known as traditional insurance plans, the non-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 non-participating insurance plans are not linked to the market, and the total amount of the premium goes towards insurance coverage; they are called non-ULIP policies. The insurance company 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-linked insurance plans.
As the name suggests, non-linked, non-participating insurance plans do not participate in the insurance company’s business. You have to pay a fixed premium based on the sum assured and receive guaranteed returns. The promised amount is paid to the nominee in case of the unfortunate demise of the policyholder.
1. These non-linked, non-participating insurance plans are not dependent on the market. Hence, the returns are guaranteed regardless of the performance of the life insurance company.
2. Market risk is the main difference between linked and non-linked insurance plans. Although professional fund managers usually handle the linked policies, these are still subject to market risk. On the other hand, non-linked insurance plans provide low risk with guaranteed returns.
3. It guarantees a death benefit in your absence. For example, a non-linked, non-participating insurance plan offers the promised amount to your nominee and takes care of your family.
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 are highly flexible plans that 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 some 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.
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 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. For example, 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 can get the premium in return. (Note: Application charges might be deducted in case of return.)
5. ULIPs offer some unparalleled tax benefits such as:
Just like whole life insurance, the death coverage amount in ULIP is exempted under Section 10(10D).
Highly flexible plan that allows managing investment and gives freedom to choose investment funds of your choice as per policy. Additionally, enables to invest according to your risk appetite
Not a flexible plan that the insurance company manages everything related to the investment
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
All charges are upfront
Might have some hidden charges.
Allows partial withdrawal after lock-in period
Partial withdrawal is not allowed before maturity in most cases. There may be some exceptions
Allows fund switching
Policyholder has no participation in investment
ULIPs are a modern investment tool that saves you from the worries of managing multiple financial avenues at once while allowing you to enjoy a flexible investment plan with numerous benefits. You can consider all the factors, such as your requirements, income generated, risk-taking appetite, and switching options, while making a decision. For example, you can opt for Unit-Linked insurance plans for higher returns and additional benefits. However, if you want low-risk and guaranteed returns, a non-unit-linked insurance plan would be the right fit.
In this policy, the investment risk in the investment portfolio is borne by the policyholder.
What Happens If I Stop Paying My ULIP Policy Premium After Paying the First Premium? Will I Still Get The Return?