Who should consider investing in unit-linked and non-linked insurance plans and why?


Most policyholders get confused by considering insurance as investment and end up making investments in market-linked insurance plans. One needs to understand that non-linked insurance plans are equally important. Also, insurance should be bought as per the need and not on what market returns they are offering.

On one side where market linked insurance product provides you decent protection cover with non-guaranteed high return on an investment, the other side, non-linked insurance product promises coverage upto the policyholder's death (till the age of hundred).

Let us understand what are linked and non-linked plan and on what basis one should consider them.

Linked plans: The products are basically market linked and commonly known as ULIPs (Unit Liked Insurance Plans). These are the insurance products which provides protection benefit plus other market linked benefits which are partially or wholly dependent on the performance of the underlying assets.

Who should consider choosing a Market linked plan ULIPs

--When you are looking for protection as well as equity and debt investment option both in one product

--When you are looking for higher returns market beating on your premiums

--When you are looking for dual tax advantage by investing in long term equity and saving Rs 1.5 lakh under section 80C to get the tax benefit.

--When you are looking for flexibility in switching between the funds

A Unit-linked also offers you the following death benefits:

--The sum assured as agreed in the policy plus the balance in the unit fund or higher of the sum assured as agreed in the policy or the balance in the unit fund.

Santosh Agarwal, Associate Director and Cluster head- Life Insurance, Policybazaar.com told Moneycontrol that the new age online ULIPs or 4G ULIPs are low cost and zero commission where charges like premium allocation, policy administration are typically zero. The fund management charges are capped at 1.35% by IRDAI and range between 1-1.35%."There is an inbuilt life cover in ULIPs for which a customer pays mortality charges but companies like Bajaj Allianz Life Insurance and Canara HSBC OBC- Invest 4G have introduced the return of mortality charge (ROMC) feature and have disrupted the market," she told.

A few examples of new age ULIPs are Bajaj Allianz- Goal Assure, HDFC Life- Click2 Invest, Edelweiss Tokio Life- Wealth Plus, ICICI Prudential- LifeTime Classic, Max Life Insurance- Online Savings Plan, Canara HSBC OBC Life Insurance- Invest 4G.

Non-linked plans: Traditional or conventional life insurance plans arelow-riskinvestment products. They offer guaranteed maturity proceeds along with declared bonuses (only in case of participating plans). Endowment and Money back plans are typicalexamples of traditional life insurance policies. Traditional plans are low-risk plans so investors who want to play safe and are looking for guaranteed returns should go for traditional plans. At the time of maturity, a policyholder gets tax-free fund value including bonuses.

Who should consider choosing a Traditional Insurance Plan

One should opt for traditional policies under the following circumstances:

--When you want long term financial stability with no risk
--When you are looking form complete protection and guaranteed returns on your premiums
--When you want continuous cash flow in future life events/goals like child's education & wedding planning or your own retirement.

--When you are looking for an instrument which can give you higher tax saving benefit

A few examples of traditional plans are HDFC Life Insurance- Sampoorn Samridhi Plus, Edelweiss Tokio Life Insurance- GCAP, HDFC Life Insurance- Sanchay, ICICI Prudential Life Insurance- Savings Suraksha

Here's a comparative analysis between linked and non-linked insurance plans