Difference Between Linked and Non-Linked Insurance Plans

When one has to choose a life insurance plan, the variety and options available across different types of life insurance plans, can pose a challenge. The information one needs to process to make this decision can seem difficult, affecting one’s ability to choose the right policy. If you’re buying your first life insurance policy, you will come across Linked and non-linked insurance plans. These are the most common types of insurance policies. We aim to explain what these plans are and how they differ from one another, so that you can select the right life insurance plan.

What is a Non-Linked Insurance Policy?

It is a traditional life insurance Plan designed to provide a stable and assured financial safety net through life coverage and guaranteed benefits. Unlike linked insurance plans, the returns of Non-Linked Insurance Plans aren’t tied to market performance. If your risk tolerance is low and you want fixed returns on maturity, then Non-Linked Insurance Plans are better suited to your profile.

While most non-linked insurance plans (traditional plans) such as Shriram Life Assured Income Plan, Shriram Life Early Cash Plan etc., provide fixed returns, those clubbed with Endowment Plans guarantee additional value. Term Plan such as Shriram Life Smart Protection Plan is also a popular Non-Linked Plan, but it only provides life cover to the family in the unfortunate event of the policyholder’s death during the policy term.

Advantages of Non-Linked Insurance Policy

The following benefits of non-linked insurance plans make them the ideal choice for conservative investors:

• Guaranteed Returns

One of the biggest differences between linked and non-linked plans is assured returns. Unlike linked insurance plans, Non-Linked Plans provide a guaranteed return on maturity, regardless of the market condition.

• Tax Benefits

Policyholders can claim tax deductions equivalent to the premium paid in a particular financial year u/s 80 C. However, the maximum deductions are capped at ₹1.50 lakh/annum. The maturity proceeds from such plans are tax-free u/s 10 (10D) if the premium payment for any year doesn’t exceed 10% of the sum assured value.

• Low Risk

If you evaluate linked vs. non-linked insurance plans regarding risk factors, non-linked plans emerge as the winner for individuals with a lower risk tolerance. Since market volatility doesn’t affect Non-Linked Policy returns, they appear as a safe plan for people who value stability.

• Long-term Wealth Creation

Most non-linked insurance plans have a long tenure, so they encourage disciplined saving over time. They help people build a substantial fund for future needs, securing their life financially. You can amplify your long-term wealth creation goals by pairing Non-Linked Plans with other Retirement Plans and Savings Plans that complement your financial goals.

What is a Linked Insurance Policy?

A linked insurance policy blends investment and insurance aspects in a single financial product. Unit Linked Insurance Plans (ULIP) are the most common type of linked insurance plans. When you invest in such plans, a part of the premium goes toward life coverage while the balance is invested in market-linked funds.

Since the premium is invested in market securities, policyholders may earn higher returns. These plans are recommended for risk-tolerant individuals who can handle market volatility. You can check our Shriram Life Wealth Pro plan, as this Unit-Linked Policy provides the best of investment and protection in a single plan.

Advantages of a Linked Insurance Policy

The following advantages of linked insurance plans make them an ideal choice for risk-tolerant individuals.

• Growth Potential

It is among the best life insurance Investment options that allows your money to grow based on the performance of your chosen funds. Instead of receiving a fixed amount, you have a higher potential to earn great returns.

• Flexible Fund Options

What makes linked plans more advantageous in the linked vs. non-linked life insurance comparison is its flexibility. Policyholders can choose between debt, equity, or balanced funds to align the investment with their risk appetite and financial goals.   

• Transparency

Unlike non-linked plans, ULIP policyholders receive detailed reports on fund performance and related charges. It helps them understand and track their investment and potential returns for clarity and convenience.

• Tax Benefits

Payments made toward insurance premiums are eligible for tax deductions u/s 80 C, up to a maximum of ₹1.50 lakh/annum. Maturity proceeds received on ULIP plans will be tax-free u/s 10 (10D) if the aggregate annual premium payment doesn’t exceed ₹2.50 lakh. However, maturity proceeds received by the nominee in the event of a policyholder’s death will be entirely tax-free.

• Switching Options

Some ULIPs provide free fund switches within a specific limit, so you can adjust your portfolio in response to changing market conditions or personal shifts in financial goals. 

How do Linked Insurance Plans Differ from Non-Linked Insurance Plans?

You can effortlessly choose the right insurance plan if you clearly understand the difference between linked and non-linked plans. The following table will give you a better picture of the linked vs. non-linked life insurance plans:

Which Insurance Policy is best for Your Investment Planning?

You must always choose your life insurance investment options based on your financial objectives, risk tolerance, and budget because not all plans are designed the same. Non-linked insurance plans will be a better choice if you want a stable return without market risk. Conversely, linked insurance plans are recommended if you are comfortable with market-linked fluctuations and want to take advantage of the high growth potential.

Since both types of life insurance Plans have pros and cons, understand the policy clearly before investing. Learn how linked and non-linked plans work before making a decision. Consult a financial planner for personalized guidance if you’re still confused or overwhelmed by the options.

Get the Best Life Insurance Coverage with Shriram Life Insurance

Life is unpredictable, and one of the most responsible aspects of financial planning is enabling that the policyholder’s family is taken care of financially, in the event of the insured’s unfortunate demise. This is where life insurance plans play a role in providing security and peace of mind. We recommend that an individual could explore the different types of life insurance Plans and invest in the right plans to secure their future. You can also explore our Protection Plans to find the ideal financial product to suit your requirements.

Shriram Life Insurance provides various insurance plans designed to achieve varying financial goals, each with varying features and benefits. You must check our Shriram Life Family Protection Plan if you want to secure your family’s financial future in case of your untimely demise. Our Shriram Life Early Cash Plan is a better option if you want to grow your wealth over a period while enjoying insurance coverage.