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.

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. 

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 an endowment policy, which guarantees 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.

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.