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Key Differences Between Term Insurance, ULIPs, And Health Insurance

The three main types of insurance policies that people commonly opt for are term insurance, ULIPs, and health insurance.

  • 4,850 Views | Updated on: Mar 14, 2024

Among the various types of insurance policies available, three popular categories are term insurance, ULIP term plan (Unit Linked Insurance Plans), and health insurance. While all three provide financial protection, they differ in their key features, benefits, and coverage. Understanding the differences between these types of insurance can help individuals make informed decisions about which policy best suits their needs.

As important as insurance is, its relevance in your life can depend on a number of factors. Not all insurance plans are the same. Each plan has its own advantages, features, and impact on your standard of living and your family’s present and future financial requirements. Some of the most commonly bought insurance policies include a term insurance plan, a health insurance plan, and a Unit Linked Insurance Plan (ULIP).

This article talks about the differences between these plans and how and when you may buy them.

What is a Term Insurance Plan?

A term insurance plan is a pure life protection plan. When you buy term insurance, you pay regular premiums in return for a sum assured. This sum assured is paid to your family in the unfortunate event of your death during the policy term. There are no survival benefits if you survive the term. Term insurance plans are primarily designed for the sole earning member of the family as it can be hard for their loved ones to cover the costs of routine expenses in their absence.

A term plan offers a high sum assured at a relatively smaller premium. In fact, term insurance may be the most affordable insurance product.

What is a Health Insurance Plan?

A health insurance plan provides financial protection for healthcare expenses. Health insurance covers expenses that arise out of an illness, injury, accident, etc. The sum assured, in this case, can be claimed at the time of diagnosis. This money can then be used for a variety of costs, such as pre and post-hospitalization expenses, ambulance fare, medicine bills, room rent, etc. A health insurance plan may or may not offer protection for life.

What is a Unit Linked Insurance Plan (ULIP)?

A Unit Linked Insurance Plan is an insurance product that offers life insurance as well as investment opportunities. With a ULIP, you can secure your family’s future with life cover. A part of your premium is used to secure the sum assured, and the other part is invested in the market for better returns. Moreover, on maturity, you get the return from your investments along with accrued bonuses, rewards, etc. Hence, allowing you to build a savings fund for your long-term goals.

The Key Difference Between a Health Insurance Plan, a Term Insurance Plan, and a Unit-Linked Insurance Plan

Health insurance, term insurance, and unit-linked insurance plans (ULIPs) are three popular options that often get compared and confused with each other. While all three are insurance plans, they serve different purposes and have unique features that set them apart. The table below highlights some of the most important ones that you must know about.

Point of Difference

Health Insurance

Term Insurance

Unit Linked insurance Plan

Coverage provided

Covers the costs of various illnesses included in the plan along with other health-related expenses, such as

● The cost of pre and post-hospitalization

● The cost of medicines

● Doctor’s fees

● Ambulance charges

● Surgery costs

● Diagnostic tests and health checkups, etc

Offers a sum assured to the nominee in the unfortunate event of the policy holder’s death during the policy term

Offers life protection, along with investment opportunities to grow money

Utility

Ideal for people who need to cover their healthcare expenses

Ideal for people who are the chief earning members in the family with financially dependent loved ones

Ideal for people who are looking to grow their money while safeguarding the future of their family

Investment component

There is no investment component

There is no investment component

There is an investment component

Types of policies

Health insurance plans can be categorized as

● Individual health plans

● Critical illness health plans

● Family floater health insurance policies

● Senior-citizen health policies

● Corporate group health insurance policies

There are two types of term insurance plans:

● Regular Term Insurance Plans

● Term Plans with Return of Premium (TROP)

There are not any ULIP types. However, you can choose different types of funds, such as equity, debt, etc

Add-on covers or riders

Some common riders include:

● Maternity and newborn baby cover

● Personal accident covers, etc

Some common riders include:

● Accidental death benefit rider

● Permanent disability rider

● Critical illness rider

Some common riders include:

● Accidental death benefit rider

● Permanent disability rider

● Critical illness rider

Premium

Depends on the coverage of the plan

Depends on the sum assured, but comparatively low

Depends on the money invested and the sum assured chosen

Lock-in period

There is no lock-in period, but there can be a waiting period for pre-existing illnesses

There is no lock-in period

There is a lock-in period of 5 years

Returns

There are no returns

There are no returns for regular-term plans. In TROPs, the sum of all premiums paid is returned as a maturity benefit if the policyholder survives the policy term

The returns depend on the market situation

Tax benefits

You can claim a tax deduction for the premiums paid under Section 80D of the Income Tax Act of 1961

You can claim a tax deduction for the premiums paid under Section 80D of the Income Tax Act of 1961. The payout received by your nominee is also tax-free under Section 10(10D)

You can claim a tax deduction for the premiums paid under Section 80D of the Income Tax Act of 1961. The maturity amount and the death benefit are also tax-free under Section 10(10D)

Ideal time to purchase

Health insurance is crucial for people of all ages, including children, young adults, and senior citizens. Moreover, the younger you are when you buy a health insurance plan, and the more affordable the premiums

Term insurance is crucial for working professionals whose families depend on them for their income. Moreover, the younger you are when you buy a term insurance plan, the more affordable the premiums

ULIPs are long-term investment products. The right time to purchase a ULIP depends on your goals and time horizon

Common Benefits of Health Insurance, Term Insurance, and ULIP

Health insurance, term insurance, and ULIP are three types of insurance policies that provide different benefits to individuals. Health insurance covers medical expenses, term insurance provides life cover, and ULIP combines investment and insurance. Let us now understand the common benefits of term insurance, ULIP, and health insurance.

Benefits of Health Insurance

Covers Medical Expenses

The primary benefit of health insurance is that it covers medical expenses, including hospitalization, surgery, doctor’s fees, and medication. This helps individuals to access quality medical care without worrying about the cost.

Cashless Treatment
Many health insurance policies offer cashless treatment, which means that the insured person does not have to pay the medical bills upfront. Instead, the insurance company settles the bill directly with the hospital.

Tax Benefits

According to Section 80D of the Income Tax Act, health insurance premiums are tax deductible. Thus, people may deduct up to ₹25,000 from their taxable income for health insurance premiums they have paid for themselves, their spouse, and any dependent children.

Benefits of Term Insurance

Covers Medical Expenses

The primary benefit of health insurance is that it covers medical expenses, including hospitalization, surgery, doctor’s fees, and medication. This helps individuals to access quality medical care without worrying about the cost.

Cashless Treatment

Many health insurance policies offer cashless treatment, which means that the insured person does not have to pay the medical bills upfront. Instead, the insurance company settles the bill directly with the hospital.

Tax Benefits
According to Section 80D of the Income Tax Act, health insurance premiums are tax deductible. Thus, people may deduct up to ₹25,000 from their taxable income for health insurance premiums they have paid for themselves, their spouse, and any dependent children.

Benefits of Term Insurance

Provides Life Cover

Term insurance provides life cover to the insured person. The nominee receives the sum assured in the event of the policyholder’s passing during the policy term.

Affordable Premiums

Term insurance is one of the most affordable types of insurance policies available in the market. Because of this, a sizable portion of the population can access it.

Tax Benefits

Premiums paid towards term insurance policies are tax-deductible under Section 80C of the Income Tax Act. This means that individuals may deduct up to ₹1.5 lakhs from their taxable income for premiums paid.

Benefits of ULIP

Combines Investment and Insurance

ULIP combines the benefits of investment and insurance. A portion of the premium paid towards ULIP is invested in equity, debt, or a combination of both. This allows the insured person to create wealth while also getting life cover.

Flexibility
ULIP offers a high degree of flexibility to the policyholder. They can choose the investment option that best suits their risk appetite and financial goals.

Tax Benefits

Premiums paid towards ULIP are tax-deductible under Section 80C of the Income Tax Act. In addition, the proceeds received from the policy on maturity or in case of the policyholder’s demise are tax-free under Section 10(10D) of the Income Tax Act.

Who Needs These Plans?

Health insurance, term insurance, and ULIP are three important insurance products that serve different purposes. It is essential to understand who needs these types of insurance and why.

Health Insurance

Health insurance is crucial for everyone, regardless of age or income. It covers the cost of medical treatments, hospitalization, and other medical expenses. Healthcare costs are rising, and an unexpected illness or injury can quickly drain your savings. A health insurance policy can help you avoid financial hardships due to medical expenses.

There are different types of health insurance policies available, including individual, family, and group policies. An individual policy covers only one person, while a family policy covers all members of a family. A group policy is provided by an employer to its employees. It is important to choose a policy that meets your healthcare needs and budget.

Term Insurance

Term insurance pays a death benefit to the beneficiary if the insured person dies during the policy term. Term insurance is ideal for those who have dependents and want to ensure their financial security in case of their premature death.

The premium for term insurance is generally lower than other types of life insurance, making it an affordable option for many. It’s important to choose a policy term that matches your financial goals, such as paying off a mortgage or providing for your children’s education.

ULIPs

ULIPs are suitable for those who have a long-term investment horizon and want to create wealth while ensuring financial protection for their loved ones. It is important to understand the charges associated with ULIPs, such as mortality charges, fund management charges, and surrender charges.

How to Choose Between a Term Insurance Plan, a Health Insurance Plan, and a Unit-Linked Investment Plan?

Each of these plans offers a unique set of features that can cater to different needs. While health insurance is vital for all, irrespective of age or income, a term insurance plan and a ULIP may be suitable only for some. Term insurance is targeted at chief earning members of the family. The premiums are low, and the sum assured is high. However, the sum assured can only be claimed at the time of death during a policy term. If this clause does not appeal to you, you can look at other types of life insurance plans, such as whole life insurance plans.

ULIPs, on the other hand, offer something that is completely different from a term plan and a health plan. A ULIP can be a good option if you want to invest your money and secure your loved ones under one policy. These plans will offer you a death benefit as well as maturity benefits that will include bonuses, rewards, and investment returns.

It helps to discuss these factors with your family members before purchasing a plan. Being cognizant of their inputs and needs can help you pick a policy that benefits your family as a whole.

Final Thoughts

Insurance should be a part of your financial planning, but the kind of plan you choose can depend on your unique needs and future goals. Term insurance, as well as Unit Linked Insurance Plans, all offer great benefits and features that can help you build a savings fund for times when you and your loved ones need financial liquidity. Make sure to understand their advantages and utility, so you can pick a policy that provides you with maximum benefits over the long run.

    Key takeaways

  • When you buy term insurance, you pay regular premiums in return for a sum assured.
  • A health insurance plan provides financial protection for healthcare expenses.
  • A Unit Linked Insurance Plan is an insurance product that offers life insurance as well as investment opportunities.
  • While health insurance covers medical expenses, term insurance provides life cover, and ULIP combines investment and insurance.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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