What are Unit Linked Insurance Plans?


Unit Linked Health Plans/ Unit Linked Insurance Plans (ULIPS) is a combination of market-linked investments and health insurance cover. Along with health protection, it also helps build a corpus that can be used to meet expenses that are not covered by health policies.
The cost of every health plan depends on age, gender, health, and other factors. It is a mixture of investment and insurance. A premium amount you pay is divided into two parts:

  • where a part of your premium is invested,
  • and remaining is used to buy a cover.

Thus, this plan offers both return and safety. Returns earned are utilized to pay for medical expenses, over and above the insurance limit. Remember, the investment and returns you receive are subjected to market risk. The returns earned will be paid back to you on the date of maturity/ on the completion of policy duration.

Advantages of ULHPs:

  • Typically all the health plans cover only your medical expenses, but these plans help you create a pool of savings to cover your uncovered costs.
  • Additionally, it helps you pay for the treatment of pre-existing diseases till 3 to 4 years of buying the policy, which also subjects to continuous renewal. It means if you are admitted to the hospital for pre-existing disease, you can pay for your medical charges by withdrawing from the corpus. 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 urgency. This plan helps build a savings pool for medical emergencies that are not covered by other policies.
  • It takes care of your medical expenses even after the expiry of the policy. The cover value is paid at the end of the term. If the policyholder dies before the policy matures, his nominee gets the money.
  • If you forget to pay for the annual premium, it will be deducted from your corpus, which ensures the continuity of the policy. However, there may be a minimum of years to avail of this benefit.
  • There is an option available where the structure of the portfolio is made according to the age and risk profile of the policyholder.
  • There is no effect of market fluctuations on the policy cover.
  • Income Tax Act covers these types of plans in Section 80C and 80D. Premium up to Rs15,000 (Rs 20,000 for senior citizens) can be claimed for exemption.

Disadvantages of ULHP:

There are two sides to a coin, therefore along with the benefits these plans do carry some difficulties, and they are as follows:-

  • Limited Cover- 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.
  • Lock in the period- They have a lock-in period where one can’t withdraw the money before that.
  • Expensive- Allocation of premium and fund management expenses make this plan costly. Because the investment portion is unit-linked, the policy suffers from the drawback of high charges.

Thus, ULHP is a life insurance product, which provides risk cover for the policyholder along with investment options to invest in any number of qualified investments such as stocks, bonds or mutual funds. As a single integrated plan, the investment part and the protection part can be managed according to specific needs and choices.

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