The purpose of an insurance policy is to provide you with financial protection against certain types of risks to different aspects, such as health, life, business, vehicles, property, and so on. The kind of protection depends on the type of policy chosen. For instance, motor insurance offers financial protection to your two-wheeler or four-wheeler. The two most popular policy types are life insurance and health insurance. Within life insurance, too, a prevalent sub-category is the ULIP policy. This policy provides life coverage and market-linked investment returns under one product. Let’s understand how a ULIP policy differs from health insurance.
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What is a ULIP and how does it work?
A ULIP is primarily a life insurance policy, that is, its main aim is to provide your family with financial assurance when you are no longer around to take care of the finances. However, unlike traditional life insurance, a ULIP also offers investment opportunities along with a life cover. So, your ULIP premium is put to two uses – to ensure your life and to invest in financial instruments. You can invest in equity funds, debt funds, and even opt for a combination of both depending on your needs.
A ULIP plan calculator can help you understand how each type of asset class – whether equity or debt – differs in terms of returns.
How does health insurance work?
Health insurance offers financial help to you in the event of a medical emergency. You pay premiums for the policy as per the sum assured chosen. When you or the other covered members are admitted into a hospital or are stuck in a medical emergency covered by the policy, the insurer provides financial relief. Health insurance is a general insurance policy and does not cover death under any circumstances.
Key differences between ULIPs and health insurance
- Pay-outs of each policy
A ULIP policy offers three types of pay-outs – the death benefit pay-out, which is received by the family members in the event of the policyholder’s demise; the maturity benefit pay-out, received by the insured on the maturity of the policy; and surrender value pay-out, provided when one voluntarily terminates the policy. Besides these, one can also make partial withdrawals and receive funds from the policy once the lock-in period is over.
Health insurance has primarily two types of pay-outs – reimbursement payment and benefit pay-out. The former type occurs in an indemnity-based policy, wherein the insurer re-compensates the insured as per the expenses they have incurred during the medical emergency. The benefit pay-out refers to a pre-fixed lump sum amount given to the insured on the diagnosis of a particular illness, regardless of the expenses actually incurred.
- The objective of each policy
ULIPs are meant for life coverage and wealth creation. Policyholders look for a good ULIP fund performance before investing to make the most of their investment. The returns can be used to meet various financial goals, such as funding children’s higher education, travelling long-distance, financing a wedding, planning for retirement, and so on.
The main objective of health insurance is to secure finances for medical emergencies. If you want to ensure a financial backup in case you or your family members ever get hospitalised, you should buy health insurance. It also covers diagnostic tests and X-rays, annual health check-ups, AYUSH coverage, etc.
- Risk aspect
The risk element of your ULIP policy depends on the kind of instruments you are investing in. If you have invested in debt funds, such as fixed deposits, bonds, and so on, the risk is low. In the case of equity investments, the risk is high due to the unpredictability of market performance.
There is no element of risk involved in a health insurance policy. It does not have any savings or investment component linked with it.
- What policyholders look for in each type of policy
A ULIP policyholder would ensure the following before buying a ULIP policy:
- An excellent ULIP fund performance over the last few years
- Low expenses on charges such as fund management charges, partial withdrawal charges, premium allocation charges, and so on
- A trusted insurer with adequate experience in the investment field
- Comprehensive life insurance coverage
A health insurance policyholder would have more general criteria, such as:
- A high claim settlement ratio
- A wide variety of illnesses and medical conditions covered
- A simple claim-raising procedure, as one is more likely to make a health claim than a life claim
Tools such as the ULIP plan calculator and health insurance premium calculator can help you in making your purchases more affordable.
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