The main difference is in the flexibility in the choice of investments. In the case of unit-linked life insurance, the insurance company would usually offer a choice of different funds (say, with a differential mix of bond and equity investments) in which the policyholder can opt to invest his/her contributions.
The policyholder can decide which funds his/her contributions need to be invested in and in what proportion. Therefore, the returns under the policy are dependent on the investment choice made by the policyholder.
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