What Are Linked & Non-Linked Insurance Plans?

It is natural to compare options before you buy something, expecting to choose the best out of all that’s available and getting the best price for it. The same stands true when we are buying an insurance policy.

There are several different types of life insurance policies available in the market, all intended to meet different requirements and needs of the customers. When buying a policy, knowing the difference between linked and Lon-Linked Policies will enable you to make the right choice according to your specific needs.

The two kinds of insurance plans, non-linked and linked, promise to provide life cover and returns or a combination of both. It can be confusing to choose from all the options available, but with an understanding of how these insurances work, you will be able to make the right decision.

Linked Insurance Plans:

Linked Insurance Plans are often referred to as an insurance-cum-investment product. These plans are linked to the stock market and their returns are influenced by market fluctuations. Therefore, bonuses come at the insurer’s discretion. ULIPs or Unit Linked Insurance Plans that pay dividends or bonuses can be classified as linked insurance policies.

Non-Linked Insurance Plans:

Non-Linked Insurance Plans are traditional plans that are not linked to the stock market. It provides low-risk returns and a well-defined maturity amount and bonuses. A Term Insurance or an endowment policy can be classified as non-linked insurance policies.

How do Linked Plans differ from Non-linked Plans?

1) Investment Flexibility

Linked plans are ideal when it comes to flexibility of investment. You have the option of investing according to your risk appetite, financial goals and convenience. In addition, you can also choose from the kind of funds you wish to invest in, from debt, equity or hybrid funds. On the other hand, a non-linked plan doesn’t allow you to choose the investment avenue. The insurance company allocates your money in the funds according to its expert strategy and discretion.

2) Maturity Payout

In case of linked plans, when the policy matures, your accumulated units are paid out to you at the current unit price. Plus, some plans like ULIPs offer extra units in form of yearly bonuses and loyalty additions at the time of maturity. However, in case of non-linked plans like term insurance, you are aware of the sum assured from the date of commencement of the policy and the even the bonuses, if any, are guaranteed at the time of buying the policy.

3) Transparency

Linked plans offer the facility to track your investment portfolio and as a part of your plan, the insurance company may update you regularly on the premium you invest and the value of the fund units you hold at regular intervals. Inversely, non-linked plans often do not have an investment part; therefore, there is no option to track an individual’s portfolio.

4) Partial withdrawal

Linked plans are perfect in case there is an emergency need for cash. Unit linked Insurance Plans lets you make partial withdrawals from your fund. However, there may be withdrawal limits, like for common ULIPs you can only withdraw up to 10% of the total premiums that you have paid so far. But this may differ from one insurance provider to other. As for non-linked plans, you cannot withdraw money from your fund, but some policies may allow you to take a loan against your policy.

5) Switching options

Linked plans allow you to transfer your investment value to another fund so you can get the maximum benefits from your policy. But this option is unavailable in traditional non-linked plans.

6) Top-up Option

If you earn a bonus, your regular premium can be topped-up with that amount in ULIPS. But for non-linked plans, this facility is unavailable.

Which should you choose for your investment planning?

Your investment decision should first and foremost depend on your investment goals, and secondly, on your risk profile. If you are open to taking risks, then market-linked plans can get you good returns over a prolonged investment period. On the other hand, if you are averse to taking risks, go for non-linked plans that offer steady buy guaranteed returns.

Both linked and non-linked insurance plans have their benefits and limitations. Research and careful analysis can help you choose a plan that fits your financial goals. Canara HSBC Life Insurance offers Invest 4G, a linked insurance plan that offers returns customized to your needs, through flexible investment fund options and multiple portfolio strategies.