There are many types of life insurance plans available in the market, amongst which the most common are ULIPs, term insurance & health insurance plans. Though all of them offer financial security, they serve different objectives. Understanding the differences between the three will help an individual make an informed decision while choosing a plan.
What is ULIP?
A Unit Linked Insurance Plan offers a dual benefit of insurance & investments, where a part of the premium is allocated towards life insurance & the remaining part is invested in market-linked securities. In case of a sudden demise of the policyholder, the beneficiaries will receive the death benefit or the fund value, whichever is higher. In case the policyholder survives the policy, the policyholder will receive the fund value that would have been accumulated, depending on the fund’s performance.
What is Term Insurance?
A Term Plan is a pure protection plan with no investment component, which means the policyholder receives no sum if they survive the policy tenure. It is a type of Life insurance offering life insurance coverage at an affordable premium cost, where the death benefit is paid to the policyholder’s family members in the event of an unfortunate demise of the policyholder. The payout amount helps the family members to fulfil the financial requirements, repaying outstanding loans & debts, children’s education fees, & other expenses, etc.
What is Health Insurance?
A health insurance plan is basically a contract between the insurer & the policyholder, under which the insurance company offers complete coverage to the insured maximum up to the limit of the sum assured. It also offers medical coverage for medical expenses that are incurred during an emergency or planned hospitalisation. The insurance provider reimburses the costs & expenses incurred due to illness or injury, etc.
Difference between ULIP, Term Insurance & Health Insurance Plan
| Basis of Difference | ULIP | Term Insurance Plan | Health Insurance Plan |
| Coverage Offered | This plan provides dual benefits of insurance & investment. | This plan provides the sum assured amount in case of the unfortunate death of the policyholder at any time during the policy tenure. | This plan includes the cost of health-related illnesses & expenses, like surgery costs, hospitalisation costs, medicine costs, health check-up costs, etc. |
| Utility | This plan best suits those individuals who are looking for wealth creation while securing the financial future of the family. | This plan best suits those individuals on whom family members are dependent. | It best suits individuals who are looking for health-related expenses. |
| Investment component | This plan includes an investment component. | This plan does not include an investment component. | This plan does not include an investment component. |
| Types of policies | It cannot be further segregated into different types; rather can be divided into different funds, i.e. debt, equity, or balanced. | This plan can further be segregated into two types, namely, Regular term plans & term plans with return of premium. | This plan can further be segregated into different types: Critical illness health plansSenior-citizen health policiesIndividual health plansFamily floater health insurance policiesCorporate group health insurance policies |
| Add-on covers or riders | Some of the main add-on riders include: Permanent disability riderAccidental death benefit riderCritical illness rider | Some of the main add-on riders include: Permanent disability riderAccidental death benefit riderCritical illness rider | Some of the main add-on riders include: Personal accident insuranceMaternity & Newborn baby cover. |
| Premium | The premium amount depends on the amount of sum assured & the money invested. | The premium amount depends on the amount of sum assured offered. | The premium amount depends on the coverage amount offered. |
| Lock-in period | This plan comes with a lock-in period of 5 years. | There is no lock-in period under this plan. | There is no lock-in period under this plan, while it contains a waiting period in case of pre-existing diseases. |
| Returns | Under this plan, the returns are received depending on the market situation. | The regular term plans do not offer returns. Under term plans with return of premium, the total of the premium amount paid is returned in case the policyholder survives the plan. | This plan does not offer any returns. |
| Tax benefits | It allows a deduction of tax on the amount of premium paid u/s 80C of the Income Tax Act, 1961. Additionally, the maturity benefits received are exempt from tax u/s 10(10D). | It allows a deduction of tax on the amount of premium paid u/s 80C of the Income Tax Act, 1961. Additionally, the death payouts received by the nominees are exempt from tax u/s 10(10D). | It allows a deduction of tax on the amount of premium paid u/s 80C of the Income Tax Act, 1961. |
| Ideal time to Buy | The ideal time to buy a ULIP depends on your financial objectives & investment horizon. | It is advised to buy a term plan at your younger age, as more younger you are more reasonable the premium would be. | It is advised to buy a term plan at your younger age, as more younger you are more reasonable the premium would be. |
How to choose between these plans?
All three plans are meant for different purposes, fulfilling different requirements of individuals. A health plan is considered to be important for every age group, while term plans & ULIPs are a choice. A term plan is meant for the primary earning family members, where the rest of the family members are dependent on them. This plan comes with lower premium amounts & a high sum assured, which can be claimed when the policyholder dies. The ULIP returns, on the other hand, depend on the chosen fund’s performance, which suits those individuals looking for a balance between risks & rewards.
Conclusion
To conclude, all of them, namely ULIPs, term & health insurance plans, come with different objectives, while letting you build a comprehensive portfolio. On one hand a term insurance & health insurance plans offer financial protection, & ULIPs add wealth creation. An individual should consider diversification of funds, maintain a balance between security, savings, & growth of funds.
Also Read : Why NRIs Need Term Insurance: Essential Coverage Explained
