Difference Between Linked and Non-Linked Insurance Plans

Understanding the difference between linked and non-linked insurance policies can help you choose a plan that aligns with your financial goals and protection needs. Linked insurance plans combine life cover with market-linked investments, where returns depend on market performance.

In contrast, non-linked insurance plans are not directly affected by market movements and may offer guaranteed or non-guaranteed benefits, depending on the policy terms. While both types can provide life insurance coverage, they differ in investment exposure, risk, returns and benefit structures. Knowing these differences can help you make an informed decision.

What is a Non-Linked Insurance Policy?

Non-Linked insurance plans or traditional life insurance products aim to ensure a financial cushion for your dependents or family members against potential financial distress if something happens to you. Depending on policy terms or chosen riders, such plans also provide payouts due to disability after an accident or severe illness during the policy tenure.

Since such insurance plans are not linked with the market, your entire premium goes towards providing life cover. Non-linked but participating policies allow you to enjoy additional payouts from bonuses, dividends, etc.

Non-linked and non-participating plans generally provide death benefits to your nominees and maturity benefits if you survive its term, subject to policy conditions.

Here, you may ask which types of life insurance plans are categorised as non-linked? Generally, term life insurance, money-back policies, guaranteed savings plans, etc. are recognised as non-linked insurance policies.

Furthermore, most non-linked insurance plans (traditional plans), such as Shriram Life Assured Income Plan, provide fixed returns. Plans like Shriram Life Early Cash Plan, etc., provide returns with additional payment from bonuses. Those clubbed with Endowment Plans guarantee additional value.

Term plans such are popular non-linked plans, but it only provides life cover to the family in the unfortunate event of the policyholder's death during the policy term.

What are Some Advantages of Non-Linked Insurance Policy?

Some key advantages of non-linked plans include their returns, lower risk exposure, potential for long-term wealth creation, help with your financial goals and more. Suitable for policy buyers with a lower risk appetite, here is a detailed view of these benefits:

1. Guaranteed Returns

Between linked and non-linked Insurance policies, the former provides assured death benefits to the nominees of a policyholder if something happens to them during its tenure. Policies that are eligible for maturity benefits provide maturity payouts if the policyholder outlives the policy term. 

Especially, non-linked participating plans may offer additional bonuses or dividends as the respective insurance company may distribute a share of its profit. Since these payouts are not linked to the market, it generally ensures a predictable financial outcome.

2. Low Risk

Another difference between linked and non-linked insurance is regarding their risk. A non-linked and non-participating policy and its payout are not dependent on market performance (e.g., the stock market), lowering the risk exposure. A non-linked participating plan may provide profit shares as additional payout, but the risk is lower than a linked policy.

Therefore, people who want to avert market risks can find this type of insurance suitable. Individuals who seek stability alongside protection also may opt for this type of plan. 

3. Long-term Wealth Creation

Across India, educational  or private universities are on the rise. Also, medical and retail inflation are increasing day-to-day expenses and making vital medical requirements expensive. Since most non-linked insurance plans are generally long-term and those have a savings component, can help build a disciplined saving habit. 

Source - https://www.ndtvprofit.com/personal-finance/how-to-prepare-for-your-childs-education-in-india-and-abroad-a-simple-financial-guide-to-meet-costs-9868840

4. Tax Benefits

Investing in non-linked insurance plans also helps you save on your premium expenses. Under Section 123 of the Indian Income Tax Act 2025, you can save up to ₹1.5[1]  lakh in a financial year on your life insurance premium payments. In case something happens to you, the proceeds upon claim that your nominees get are completely tax-free. 

As you survive your policy tenure and depending on your policy terms, if you receive a maturity benefit, it is also completely tax-free. However, for these benefits, you must choose the right tax regime while filing your tax returns.

5. Affordable Premiums 

As you compare linked and non-linked insurance plans, the non-linked life insurance policies generally come at affordable premiums. This is because its premiums requires less additional charges compared to linked insurance plans and include life cover and the saving component, if applicable. 

However, a term insurance plan is also a non-linked and non-participating plan. They are generally more affordable as they usually do not have a savings component, reducing the overall premium amount.

What is a Linked Insurance Policy?

A linked insurance policy blends investment and insurance aspects in a single financial product. Unit Linked Insurance Plans (ULIPs) 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 out our Shriram Life Wealth Pro plan, as this Unit-Linked Policy provides the best of investment and protection in a single plan.

What are Some Advantages of a Linked Insurance Policy?

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

1. Growth Potential

It is among the best life insurance Investment options that allow 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.

However, funds that are equity-oriented are exposed to higher market volatility. Debt funds have the chances of risks due to inflation, changes in interest rate, etc.  

2. Flexible Fund Options

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

3. 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.

4. Tax Benefits

Payments made toward insurance premiums are eligible for tax deductions u/s 80 C (now Section 123), up to a maximum of ₹1.50 lakh per annum. Maturity proceeds received on ULIP plans will be tax-free as per Schedule II(2) if the aggregate annual premium payment does not exceed ₹2.50 lakh. 

However, Death proceeds received by the nominee in the event of a policyholder’s death will be entirely tax-free.

5. 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 and Non-Linked Insurance Policies Differ?

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:

With Shriram Life Insurance, secure your and your family's financial future with the right insurance policy fitting your budget. Explore linked and non-linked plans today and purchase the one suiting your needs!

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. 

For example, a young professional with a stable earning source may find ULIP as an option between linked and non-linked insurance plans. This is because their risk tolerance level and working years are higher, allowing them to deal with the impact of market downturns. However, a 45-year-old individual may seek stability, since with age, risk-taking ability gets lower.

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. You may consult a financial planner for personalised guidance if you are 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 ensuring 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 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.

Disclaimer

Insurance is the subject matter of solicitation. For complete details of benefits, exclusions, limitations, terms and conditions, please refer to the sales brochure and policy document carefully before concluding a sale