You might have heard about these 2 terms frequently if you are a fan of reading or reviewing insurance policies. Even if you don’t like to read insurance policies, I am sure you have read your policy documents carefully before purchase and there you might have heard about the terms linked and non linked insurance plan.
If you are new this 2 terms, then simply read any of the LIC of India insurance policies I have reviewed in this website and you will find that in the first 2 paragraphs only I have mentioned about this terms. Do you know what they actually mean?
What is linked and non linked insurance plan?
The term “linked” is directly connected to share market or stock market. That means an insurance policy which is directly linked with share market ups & downs is called a link insurance policy. These are nothing but ULIP plans or unit linked insurance plans. Now to know more about ULIP plans, you can read my previous article on what is ULIP & how they work. Whatever premium you will pay, it will be invested in stock market somehow.
Other that ULIP there are traditional plans like money back policies, endowment plans which are no where linked with share market and their returns are totally calculated in a different way. These kind of traditional plans are called non-linked insurance policies.
Difference between linked and non linked insurance plan?
I think the difference form the product type point of view is very clear. Now if you ask me which is the best product and which will give best return then I will say it will depend up on the tenure of your investments. As the ULIP plans are market linked, they will give you good return in case you stay invested for 10-15 years term only. But there will be always risk as equity investments are risky.
But if you consider the non-linked typical products, they will give you very less and moderate return of 6% avg in long run. And there will be less risk on investment compared to ULIP plans and also the return could be quite guaranteed. Although you will find almost every such policies will say they will give guaranteed return on investment.
Moreover both type of plans will also provide life insurance even though the coverage may be less.
Which one is the best to choose?
I think you can get better idea if you would spend some time and read some insurance product review articles on this website. Both products are different and you need to understand before investing. From life insurance coverage point of view, I think both the type of products will fail compared to a term insurance plan.
And from return point of view ULIPs are comparatively good if you invest for long run. In short term, ULIP may give you worst return compared with the traditional plans. Now it’s your turn to share your experience or any query related to this topic by writing a simple comment below.