First we, remixed old hindi film numbers, then fashion styles (Sushmita Sen teamed a saree with a spagetti in Main Hoon Na?). Food too,  chinese bhel and paneer pizzas.health insurance. That’s unit linked investments plus medical insurance for you.

We also remixed financial products. Unit linked insurance is a classic example. Now, there’s one more — unit linked

What is a unit linked health insurance plan?
Simply put, it means that you can now pay one annual premium, part of which will get invested to give you returns, and the rest will be used to buy you a health insurance, more populary called mediclaim.

Our reader Manish Singh, 41,*  who lives in Mumbai wants to know whether he should opt for this scheme.

Manish’s wife is 37 and they have two children, aged, 7 and 9 respectively. All these years he has been buying a medical insurance policy for his family. He would pay an annual premium of Rs 9,137 and get a cover of Rs 7 lakh for his family. This would care of all their medical needs. And since he had not made a claim yet on his policy, he had accumulated a no-claim bonus of Rs 2.31 lakh, thus increasing his total cover to Rs 9.31 lakh.

Now, he says, “I have read many articles in the newspapers recently regarding mediclaim policies and I am really confused. I have decided to discontinue my existing mediclaim policy and to go for the new unit linked health insurance policies being offered by leading life insurance companies. Here, by paying a sum of Rs 28,500 as yearly premium I can get my family insured for Rs 14 lakh (Rs 5 lakh for my wife and Rs 3 lakh each for myself and my kids). I can also make investments.”

He asks two questions:

i. Should he switch form a mediclaim policy to a unit linked health insurance plan?Major surgical benefit: Each company has a list of predetermined surgeries. For each surgery, they have a fixed payout, as a percentage of the sum assured. For instance, in case of a bypass, 100 per cent of the sum assured would be paid out whereas in case of knee replacement 60 per cent would be paid out.

ii. How will the premiums be treated, with respect to tax benefits?

Before we answer Manish’s questions, a few details. Two companies offer this policy presently – LIC Health Plus and Reliance Wealth + Health. Here’s how they work:

1. The policy gives two main types of benefits — the hospital cash benefit and major surgical benefit.

Hospital cash benefit: You can choose an amount between Rs 250 per day (in case of some companies, the minimum amount is set at 5 per cent of the annual premium) and Rs 2,500 per day for each day that you are hospitalised. When there is a medical condition, the insurance company will pay you this pre determined sum for each day that you are hospitalised. In case you are admitted to the intensive care unit, a slightly higher amount is paid as per the rules of the company.

Either ways, this policy gives a lumpsum amount and does not pay on actuals like in the case of mediclaim.

2. On the basis of the hospital cash benefit limit that you choose, your premiums will be set.

3. From your annual premium, some amount will be deducted as health insurance charges. From the remaining amount, again charges will be deducted towards your unit linked investments and the balance will be invested in a fund of your choice, either debt or equity.

4. Each family member can claim one surgery only once. The total claims in a year will be limited to the sum assured for that family member.

5. The units in your investment portion will continue to generate returns and you can withdraw them at the end of the maturity period. You can also make partial withdrawals during the term of the policy subject to some company rules.

 *name changed to protect identity 

Question 1: Is it a good decision to move from a mediclaim policy to a unit linked health insurance plan?

The answer, according to Certified Financial Planner, Gaurav Mashruwala is a simple — NO! Here are some important reasons: 

• Each surgery is paid for only once
  If the company has paid you surgical benefits for one surgery in a year, it will not pay for that again in the future. However, in case of mediclaim policies, if a medical condition was not pre-existing at the time of taking the policy, it will be covered in the future.
• No ‘no claim bonus’
  ‘No claim bonus’ is a big benefit in mediclaim policies ,which is absent in unit linked health insurance policies. In a mediclaim policy, for every claim-free year, you get an increase in the sum assured of 5 per cent for the same premium. That’s how Manish has accumulated the bonus of Rs 2.31 lakh.
• No cashless facility
  As of now these policies do not provide a cashless facility. Which means, you will first have to pay the expenses out of your pocket and then claim for a reimbursement. In most mediclaim policies, a cashless facility is available wherein the insurance company will settle your bills directly with the hospital.
• Limited cover
  In unit linked health insurance covers, there is a finite list of surgeries that are covered. This does not include surgeries like fractures from accidents. LIC officials confirm that you can claim only the hospital cash benefit in these cases. Your mediclaim policy will, however, cover accidents.
• Hospital cash benefit only for stay, over two days
  You can claim for hospital cash benefits only if you are hospitalised for more than two days. This means that if your hospitalisation charges per day is Rs 1,000 and you stay admitted for four days, the insurer will pay you only for the last two days. The cost of the first two days will be borne by you. 
• High charges on investment portion
  Because the investment portion is a unit linked plan, this policy suffers from what most unit linked plans suffer — high upfront charges. For instance, LIC’s Health Plus, charges 30 per cent of the premium in the first year and 6 per cent thereafter as policy allocation charge. For Reliance Health + Wealth, it is 25 per cent and 5 per cent respectively. Other charges include policy administration charges, fund management charges.

Question 2: How will the premiums be treated in terms of tax benefit?

Premum paid for the health cover will get you an exemption of Rs 15,000 under section 80D whereas the remaining premium invested in the policy’s fund would give you an exemption of Rs 100,000 under section 80C.Moneycontrol recommends:

For Manish, Mashruwala has a simple piece of advice, ‘It’s best to keep your investment and insurance needs separate’. Which means, continue with a mediclaim policy for health cover and invest in instruments such as mutual funds or provident funds for investment.

 (Source: moneycontrol.com )