The Smartest Way to Get Health Insurance: How ULHPs Give You Medical Coverage + Investment Returns

Have you been looking to invest in a health insurance plan that provides good medical coverage along with attractive investment returns? If so, Unit Linked Health Plans (ULHP) are worth exploring. In this blog post, we will walk you through everything you need to know about ULHPs.

What is a Unit Linked Health Plan (ULHP)?

A ULHP is a special type of health insurance plan that provides the combined benefit of a regular health plan and an investment tool. 

Part of your premium is allocated towards covering medical expenses while the remaining amount is invested in funds of your choice. 

So with a ULHP, you enjoy twin benefits – you get comprehensive health insurance and you also get to earn market-linked returns on the invested portion of your premiums.

How Do ULHPs Work?

ULHPs have a unique structure that differentiates them from regular health plans. The premium you pay is split into three parts:

Medical Claims Fund – Covers hospitalization and other medical expenses

Mortality Charges – Secures a life cover or sum assured for your nominee

Investment Fund – The remainder of the premium is invested to earn you market-linked returns

The investment fund portion works just like a mutual fund. You can choose to invest it in debt, equity, balanced, or money market funds based on your risk appetite. Or you can let the insurance company invest it for you in their best-performing fund. The returns from this investment will keep accumulating over time and enhancing the value of your ULHP.

Benefits Offered by ULHPs

Let’s look at some of the key benefits offered by ULHPs:

  • A cashless hospitalization facility like any regular health insurance
  • Higher sum insured, more coverage options compared to basic plans
  • Generate market-linked returns from the investment portion of the premium
  • Option to withdraw returns after 5 years while keeping insurance intact
  • Maturity benefit – get entire investment fund value on maturity
  • Tax exemption on maturity payouts under Sec 10(10D) of the IT Act

As you can see, ULHPs give you the advantage of earning investment income while enjoying comprehensive health insurance – a win-win proposition.

Who Should Opt for ULHPs?

Unit Linked Health Plans or ULHPs are beneficial for a specific segment of individuals who can optimize such insurance-investment hybrid products. 

Firstly, you should have a decent surplus income even after all your monthly expenditures in order to comfortably pay the premiums for ULHPs.

These plans involve higher premiums compared to basic health policies since part of the premium gets invested. 

So evaluate your income levels and financial situation before opting for a ULHP.

Secondly, if you fall under higher tax brackets, you end up paying substantial taxes that eat into your earnings. 

ULHPs help you save tax through two ways – the life cover and maturity proceeds receive tax exemption as per section 10(10D) of the Income Tax Act. 

The invested fund value also grows tax-free over long periods, enhancing your overall returns. So if tax-planning is your priority, the tax-free features of ULHPs offer advantages.

Thirdly, ULHPs allow you to earn market-linked returns that beat normal inflation in the economy. So if your objective is to get inflation-adjusted decent returns of around 10-15% over 10-15 year horizons, ULHPs are aligned investments. 

The equity exposure helps to deliver indexed or above-indexed returns compared to fixed instruments. Hence evaluate your return requirement before opting for ULHPs.

Further, since ULHPs invest a part of the premium in equity funds, there is some volatility and risk involved. 

So you need to have the adequate risk appetite and tolerance to handle intermittent negative returns for the sake of long-term gains. Don’t opt for ULHPs if you prefer guaranteed returns.

Lastly, as future healthcare costs are rising exponentially, ULHPs force you to systematically save and build a health corpus via disciplined premium payments. 

So if you have the foresight to financially prepare for future medical contingencies, nothing like ULHPs to serve this purpose.

Before You Buy a ULHP

While ULHPs have many benefits, make sure you consider certain aspects before purchasing one:

  • ULHP premiums are higher than regular health plans
  • Be comfortable with equity exposure and associated volatility
  • Be prepared to stay invested for at least 10-15 years
  • Returns are not guaranteed as in traditional plans
  • Administrative charges and fees apply which impact returns

The key is to have clarity on why you need a ULHP and what financial objectives it will fulfill for you. Use ULHPs as long-term wealth-creating instruments rather than short-term medi-claim policies.