Unit-linked health plans (ULHPs) provide a unique combination of health insurance and investment
. Apart from giving health protection, they help build a corpus that can be used to meet expenses not covered by health policies.
IndiaFirst's Money Back Health Insurance Plan, ICICI Pru's Health Saver, Birla Sunlife's Saral Health and LIC's Health Protection Plus are some ULHPs available in the market.
However, some experts do not consider ULHPs as the best option. They believe a market-linked health plan cannot beat a comprehensive health cover and there are many things one be wary of
before mixing insurance and investment. But some say each person's requirements are different and the product may be beneficial in some case. We look at both the viewpoints to help you understand the product.
THE CASE FOR ULHPsAn additional kitty:
Just like a regular unit-linked insurance plan (Ulip), a ULHP is a combination of a health insurance cover and a market-linked investment plan.
Like any health plan, the cost of the cover depends on age, gender, health and other underwriting variables. The insurance charges don't vary due to the savings component of the premium.
The customer decides the premiums to be set aside for the health cover. After paying for coverage, the rest of the premium (after deduction of charges such as premium allocation, policy administration and fund management) goes into a savings pool.
You have a standard health policy that covers hospitalisation expenses
, but what about expenses that are not covered? Also, a typical health plan does not pay anything if you are not hospitalised.
The investment part of ULHPs can rescue you in such a situation. The money accumulated in the unit-linked fund can bridge the gap between the expense incurred and the amount paid by the insurer.
Niraj Shah, senior VP and head, product management, ICICI Prudential Life Insurance, says, "Medical conditions such as diabetes and hypertension, dental care and preventive diagnostic screenings are not covered by health plans. Hence, one should have a savings pool for such expenses. This will ensure that one does not have to dip into long-term savings during a medical exigency. This plan helps build a savings pool for medical emergencies not covered by other plans."
The savings can also be used to pay for treatment of pre-existing diseases not covered by health plans
till three to four years of buying the policy and that too subject to continuous renewal. For instance, if you are hospitalised for a pre-existing disease before the waiting period is over, a mediclaim policy will not pay anything. With a ULHP, you have the option of withdrawing from the corpus.
BEFORE YOU BUY A ULHP, ASK THE FOLLOWING QUESTIONS:
- Is the plan offering comprehensive protection? It is important to ensure that the cover is not restricted to certain events and involves payouts for reasonable expenses borne for healthcare.
- Does the savings component offer a charge structure similar to or more competitive than similar financial instruments?
- Has the financial instrument given good returns historically and is the fund philosophy based on sound logic?
- Does the product offer tax advantages that you will not get if you buy health insurance and savings plans separately?
ULHPs also have maturity benefits. The systematically-built savings pool can take care of medical expenses even after the policy expires. Jayant Dua, MD and CEO, Birla Sun Life Insurance, says: "ULHPs offer a maturity amount, a motivation for those not willing to invest in pure-protection health policies. The fund value is paid at the end of the term. If the insured dies before the policy matures, his nominee gets the money.Flexibility and Convenience:
Apart from the ease innate in bundled products, which combine insurance and investment and obviate the need to track two policies, ULHPs have added advantages. If, for some reason, you forget to pay the annual premium, the amount will be deducted from your corpus. Thus, continuity of the policy is never at risk. However, there may be minimum number of years before you get this benefit.
"The unit-linked plan offered by us gives customers flexibility of not paying premiums after five years if their health fund has sufficient balance to meet future payments," says Shah of ICICI Prudential.
Like Ulips, a few ULHPs offer a lifecycle-based fund allocation option, in which a portfolio is structured according to the policyholder's age and risk profile.
"One can decide to be conservative, moderate or aggressive. With age, the money is shifted to safer assets," says Dua.
Also, market fluctuations or changes in the investment portfolio do not affect the health cover.
Malay Ghosh, president and executive director, Reliance Life Insurance, says, "The coverage is either according to the fund value or the sum assured, whichever is higher, or is the sum of both. So, the minimum cover is guaranteed, while the maximum may depend on the performance of the fund."Tax Benefit:
The plans are covered by Sections 80C and 80D of the Income Tax Act. Section 80D allows premiums up to Rs 15,000 (Rs 20,000 for senior citizens) to be deducted from taxable income each year. This may change after the proposed direct taxes code is implemented.ARGUMENTS AGAINST
The plans may seem a perfect blend of health protection and savings but many experts say it is best to keep investment and insurance separate. Here are some reasons why a ULHP can never compete with a comprehensive indemnity health plan.Limited cover, lesser benefits:
Unlike the more comprehensive covers offered by indemnity or reimbursement plans, most ULHPs provide a fixed cover. Antony Jacob, CEO, Apollo Munich Health Insurance, says, "The cover is limited to a set of events, wherein claims are based on the occurrence of the event, and the amount paid is fixed irrespective of the actual cost of treatment."
If you are looking for a comprehensive health cover and an investment tool for your portfolio, it is not a good idea to mix the two
There is also no cashless facility. This means you have to pay from your pocket and get the amount reimbursed later.
There is also no no-claims bonus. "In a health policy, for every claim-free year, your sum assured is increased by around 5%, without any change in premium. A ULHP does not have this benefit," says Neeraj Basur, CFO, Max Bupa Health Insurance. Also, the hospital cash benefit is only for hospitalisation of over 48 hours. So, if you are hospitalised for four days, the insurer will pay for only two days.Sub-limits and lock-in period:
"Despite a fund to cover the extra costs, there are limits on the amount that can be claimed," says Rishi Mehra, co-founder, Bimadeals.com. Also, one cannot withdraw the money until the lock-in period, which varies for different firms, is over.Pricey:
As the investment part is built into the policy, charges such as fund management and premium allocation make these plans costlier. Insurers also levy a high premium allocation charge in the initial years of the policy. "Because the investment portion is unit-linked, the policy suffers from the drawback of most unit-linked plans-high upfront charges," says Mehra.SHOULD YOU BUY?
Very often, customers buy without understanding the intricacies of a plan. "Knowing cap on withdrawals, effect of surrendering the policy mid-term and so on, is important," says Dua of Birla Sun Life.
Also, some people dip into the emergency corpus for discretionary expenses. Market-linked investment plans are for the long term and demand discipline. "The customer must evaluate the nature of the cover, the return, the charge structure and the tax benefits before buying ULHPs," says Jacob.
Since ULHPs don't provide as wide a cover as comprehensive health plans, they cannot replace the indemnity plans in your portfolio. But what if you have a comprehensive plan and want to increase the cover? "These plans can supplement reimbursement-based health plans. But if you are looking for an extensive health cover or an investment tool which can help you build a corpus, it is not a good idea to mix the two. There are better options available," says Mehra.