Linked & Non-linked insurance plans: What you should know

Dec 04, 2017 | 11 months ago | Read Time: 2 minutes | By iKnowledge Team

There are two kinds of insurance schemes that provide both life cover and returns: non-linked and linked plans. When it comes to investing, it can be confusing to choose between the two. If you are looking to invest, you can go through this guide to make the right decision.

What are linked and non-linked plans?

First, let’s look at the intrinsic features of a non-linked insurance plan:

  • It is a traditional plan, such as a money-back policy or an endowment policy
  • It is not linked to the stock market
  • It has a well-defined maturity amount and bonuses
  • It provides low-risk returns

Here are some of the features of a linked insurance plan:

  • It is usually referred to as an insurance-cum-investment product, called ULIP
  • It is linked to the stock market and influenced by market fluctuations
  • Bonuses come at the insurer’s discretion

Difference between linked and non-linked plans

Investment flexibility

Linked plans: If you are looking for flexibility, linked plans are ideal. You can invest according to your risk appetite, convenience, and financial goals. You can choose from debt, equity, and hybrid funds.

Non-linked plans: You cannot choose the investment avenue. The insurance company allocates the funds according to its discretion and strategy.

Maturity payout

Linked plans: When the plan matures, your collected units are redeemed at the current unit price. Plus, some plans offer extra units, either on a yearly basis or at the time of maturity.

Non-linked plans: You are aware of the sum assured plus the bonus guaranteed at the time of buying the policy.

Transparency

Linked plans: These plans offer the facility to track your portfolio. The insurance company also sends regular updates on the premium you invest and the value of the fund units you hold.

Non-linked plans: You cannot track an individual portfolio. The insurance company invests your premiums in a common ‘with profits’ fund.

Switching options

Linked plans: You may find that another fund offered by the insurance company is doing better than your current investment. You can switch to that fund.

Non-linked plans: This option is unavailable in traditional non-linked plans.

Partial withdrawal

Linked plans: Is there an emergency for which you need cash? Your insurance can help. You can withdraw money from your fund. The only condition is that the fund value should not fall below three times the annual premium after a partial withdrawal. For a single partial withdrawal, you can only withdraw up to 10% of the total premiums that you have paid so far.

Non-linked plans: You cannot withdraw money from your fund. But, some policies allow you to take a loan against your investment.

Top-up option

Linked plans: If you earn a bonus, you can top up your regular premium with that amount.

Non-linked plans: This facility is unavailable in non-linked plans.

Which one to choose for investment planning

This depends on your risk profile and investment goals. That is, if you are open to taking risks for good returns, then, linked-plans are for you. And, if you are averse to taking risks and prefer steady-yet-guaranteed returns, choose non-linked plans.

Conclusion

Both linked and non-linked insurance plans have their pros and cons. Research with care and choose the one that fits your financial goals.


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