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Does it make sense to buy a Unit Linked Health Policy?

Employer policies are currently changing frequently with the premiums going up every year. So what is the ideal time to buy a Unit Linked Health Policy?

Harsh Roongta

08 Jun 2010

Sample queries that we received on the Apnapaisa website:


Query 1:

Since I currently do not have any health insurance, I am planning to opt for a Unit linked health plan of a life insurance company since that policy will also give returns on my premium besides providing Health Insurance benefit. Should I go ahead with the decision? Amar


Query 2:

My employer provides health insurance benefit for my family. Hence I have no need to buy mediclaim policies and I am loosing the deduction claimable under section 80D. A friend who is also a life insurance agent approached me recently to invest in a Unit Linked Health Insurance plan of his insurance company which will provide me benefits over and above what is provided by my employer plus give me returns on my premium and the premium is also deductible under section 80D. Should I go ahead? - Vikram


These are few of the most sought after queries hence I thought it will benefit all our readers. Here are the responses.


Dear Mr. Amar


The old adage of not mixing your insurance and investment needs apply as much to health insurance as it applies to life insurance. Nothing can take the place of a hospitalization expenses reimbursement policy (called mediclaim in popular parlance). It covers you for hospitalization expenses arising from any illness/disease or injury (except of course for some specified exclusions) whatever they might be. The other kind of health benefits are basically a daily hospital cash benefit, major surgery benefit and critical illness benefit. The basic difference in these benefits are given below:


 

mediclaim

Daily Hospitalization cash benefit

Major surgery benefit

Critical Illness benefit

Brief Description

Reimbursement of expenditure actually incurred

Daily fixed allowance for stay in Hospital

Lump sum benefit if specified surgeries done'

Lump sum benefit if you contract specific critical illnesses

Hospitalization necessary to claim

Yes

Yes

Yes

Not necessary

Based on actual expenditure incurred

Yes

No, fixed amount for every day spent in the hospital

No, fixed amount payable for specific surgeries

No, fixed amount payable if you have specified critical illnesses

Any disease/illness/injury covered

Yes subject to specified exclusions

Yes subject to specified exclusions

Only specified surgeries covered

Only specified critical illnesses covered


As you can see, only mediclaim covers your expenditure arising from hospitalization due to any disease/illness or injury. The daily hospitalization cash benefit also provides cash for all hospitalization but the amount is small (typically ranging from Rs. 1,000/- to Rs. 5,000/- per day depending on the policy and the premium amount) to basically take care of expenditure incidental to hospitalization that is not covered by a mediclaim policy. The other two only provide specific coverage, so it is absolutely essential to make sure that you have adequate mediclaim coverage.


The Unit Linked health plans (ULHP) mentioned by you are currently offered by Bajaj Allianz, ICICI Pru Life, LIC, TATA AIG Life and Reliance Life. Except ICICI Pru Life none of the ULHP's offer the facility of hospitalization expense reimbursement. Even in ICICI PruLife, the risk premium deducted for providing the mediclaim facility is significantly higher than what is offered by their own associate company. All the four ULHPs offer one or more combination of the other 3 benefits (for which the risk premium is deducted from the fund value). Also charges such as premium allocation charges as well as policy administration charges are deducted from the fund value. The net result is that you would be better off buying the risk policies from perhaps the same insurance company(ies)(ICICI Pru Life, TATA AIG Life and Bajaj Allianz Life have such risk policies in addition to the ULHPs) and investing the balance in a regular investment option like a mutual fund or PPF to get much better returns.


Answer 2

Dear Mr. Vikram


You should first cover yourself fully for all risks. Employer policies are currently changing frequently with the premiums going up every year as a result of which it is possible that the policy may continue in the future only with reduced benefits and or may even be discontinued. Also the amount of coverage may be insufficient for your needs. Also you will not have coverage when you retire at which time getting a fresh policy may be more difficult just when you need it the most. Also you will loose coverage if you switch jobs and your new employer does not have similar coverage. Hence it is advisable that you have your own mediclaim policy for yourself and the family. If the full deduction limit for tax is not reached even after being adequately covered then you can consider buying a risk policy as provided in the first answer and only if you still want to make still more investments that you should consider the ULHPs.

So when should you buy these plans?


You can go ahead and buy this plan if you have sufficient limit left in your section 80D deduction. The deduction under section 80 D is limited to an extent of Rs. 15,000 (Rs. 20,000 per year if you are 65 or more at any time during the year).


In conclusion buying adequate risk policies is a must. If you have any limit left over after paying for the risk policy premium then you can certainly invest your money in to a ULHP to get a tax benefit.