Key Differences Between Term Insurance, ULIPs and Health Insurance
Insurance acts as a shield whenever uncertainty strikes, and therefore, becomes an important part of your portfolio. Each insurance is aimed at serving a particular purpose. While there exist multiple products with different and, at times, overlapping features, they fundamentally target the below mentioned facets:
Accordingly, insurance policies can be classified into three primary categories:
- Health Insurance
- Term Insurance
- Unit Linked Insurance Plan (ULIP)
1) What is Health Insurance?
Health insurance, also known as Mediclaim Insurance, protects an insured against the medical expenses incurred for treatment of any illness. These are renewed annually; however, a health insurance policy can also be taken for a prolonged period at once. The sole purpose of this policy is to reimburse the medical expenses to the person insured and, in case of cashless policies, directly pay the medical expenses to the hospital, thus saving the insured from incurring them.
Term insurance is the purest form of life insurance where the benefits are passed on to the family members in case of the demise of the insured person. What makes term insurance worth investing in is its nominal premiums. It offers high sums assured at relatively low premium rates as the sole purpose of this policy is to provide the life-risk cover. Some policies may provide a refund of premiums paid if the insured survives the term of the policy. To know the exact amount of premiums payable, one may use a term plan premium calculator.
3) What is a Unit Linked Insurance Plan (ULIP)?
ULIPs are insurance plans that serve two purposes viz., insurance protection and investment facility. ULIPs are designed in such a way that they invest the majority of the premiums in equity instruments, and the returns are passed on to the investors. These are specifically designed for investors looking for both insurance and investment in one instrument.
All the above three insurances serve different purposes. The primary differences between them can be summarised as under:
|Parameters||Health Insurance||Term Insurance||ULIP|
|Area||General insurance providing protection against expenses incurred for illness.||Life insurance aimed at providing life-risk cover.||Life insurance aimed at providing life-risk cover along with investment facilities.|
|Premium Amount||Depends on the amount of sum assured.||Nominal premium.||High premium as most of the premium is invested in equity, debt funds or a combination of both.|
|Refund of Premium||No refund of premium is available.||Depends on the policy terms and conditions. However, mostly, there is an option of a refund of the premium if the insured survives the term of the policy.||As the premiums are invested, it is not the premiums that are refunded but the maturity value of the investments that are returned to the insured or its nominee, as the case may be.|
|Tax Benefits||Deduction of premiums paid for health insurance is allowed as a deduction from income under section 80D of the Income Tax Act, 1961.||Premiums paid are allowed as a deduction from the income under section 80C of the Income Tax Act, 1961. Also, the amount received on the demise of the insured or refund of premium is exempt under section 10(10D).||Premiums paid are allowed as a deduction from the income under section 80C of the Income Tax Act, 1961. Also, the amount received on the demise of the insured or receipt of maturity amount is exempt under section 10(10D).|
|The Maximum Amount of Deduction Allowed From the Income||a) Rs. 25,000 in aggregate for the individual themself, spouse and dependent children.
b) Rs. 25,000 for the parents of the individual.
If any of the above is a senior citizen (i.e., 60 years or above), the above limit shall become Rs. 50,000 for both (a) and (b).
|Rs. 1,50,000||Rs. 1,50,000|
|Trigger Point||Illness of the insured person.||The demise of the insured person or completion of the policy period.||The demise of the insured person or completion of the policy period.|
|Renewal and Tenure||Tenure is generally 1 year, and therefore renewal is required each year. However, the policy can also be taken for a prolonged period.||Depends on the policy terms and conditions.||Depends on the policy terms and conditions.|
The above mentioned are the primary differences between health insurance, term insurance and ULIPs. You can consider these points and opt for a plan that best suits your needs.