Union Bank of India offers a health insurance policy with its FD: Should you go for it?

The Union Wellness Deposit scheme offers a complimentary super top-up policy for a sum insured of Rs 5 lakh.

In a bid to offer customers a value proposition amidst declining deposit rates after the Reserve Bank of India cut interest rates by 50 basis points this year, Union Bank of India has rolled out its Union Wellness Deposit scheme bundled with health insurance cover, providing a dual benefit of assured returns and protection against medical costs.

It has tied up with Manipal Cigna Health Insurance for the product. The bank will bear the premium cost for a sum insured of Rs 5 lakh for depositors who park sums of at least Rs 10 lakh for 375 days (fixed tenure). Is it advisable to go for the scheme, and does the insurance coverage provide sufficient value for the money?

The deposit amount for this scheme is between Rs 10 lakh and Rs 3 crore per deposit account.

The bank offers a complimentary super top-up policy for a sum insured of Rs 5 lakh. This insurance coverage is a one-time benefit, and won't be available if and when the fixed deposit (FD) is renewed.

A super top-up policy provides additional health insurance coverage above a deductible amount covered by an existing health insurance policy, or out-of-pocket expenses. In this scheme, the super top-up policy kicks in after the initial deductible of at least Rs 5 lakh is exhausted, giving access to an extra Rs 5 lakh as insurance cover. If the client does not have an existing health insurance cover, or if it is less than Rs 5 lakh, he or she will have to spend their own money until the Rs 5 lakh threshold is crossed before the top-up money can be tapped.

On the FD front, the scheme provides a 6.75 percent (7.25 percent for senior citizens) interest rate for a tenure of 375 days. It is available to resident individuals who can hold the account singly or jointly, with insurance coverage limited to the primary account holder.

The insurance covers only the first Union Wellness Deposit account that a customer opens, and has a waiting period of 30 days before it kicks in.

Those aged 18-75 years can invest in this FD.

According to Lt Col Rochak Bakshi (retd.), founder of True North Finance, a financial and investment planning firm based in Pune, this scheme may appeal to senior citizens who already have health cover. Hospital expenses beyond the existing policy’s limit can then be met with this top-up scheme, subject to the Rs 5-lakh cap.

This represents a reasonable incentive despite the modest Rs 5 lakh sum insured in the super top-up policy.

The interest rate offered (6.75 percent) on the 375-day term of the FD is higher than that from other large private-sector banks. HDFC Bank and ICICI Bank are offering 6.60 percent and 6.70 percent interest rates, respectively, on their FDs for one-year to less than 15 months.

Additionally, the insurance cover is free; Union Bank of India pays the premium on your behalf.

“The scheme offers higher effective returns compared to regular fixed deposits when factoring in the insurance cost,” said Shivam Pathak, founder, Asset Elixir, a wealth management and financial planning firm.

“The scheme has limitations, including a high minimum deposit requirement of Rs 10 lakh, which restricts accessibility for small investors,” pointed out Pathak. There’s also the fact that the insurance coverage is only valid for the 375-day tenure of the FD, and there is no option for renewal or continuation of insurance coverage after maturity, he added.

Also factor in that the Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the Reserve Bank of India, guarantees investments in fixed deposits of up to Rs 5 lakh. So, if you invested the minimum Rs 10 lakh in this FD scheme, only Rs 5 lakh would be eligible for DICGC protection.

This FD-linked health insurance product is not a suitable replacement for regular health insurance, as the coverage is only for a limited period and may not provide long-term protection.

“This is a short-term FD and will not be able to act as a comprehensive financial tool for beating inflation in the medium to long term,” said Bakshi. However, if one can park the required sum without affecting one’s financial plan, it can be a comprehensive tool for senior citizens to meet medical expenses.

“The usefulness of the Rs 5-lakh coverage hinges on the partnered insurer's claim settlement ratio and network of hospitals; investors should research the insurer's reputation, such as through IRDAI (Insurance Regulatory and Development Authority of India) reports, before investing,” advised Bakshi.

It is also good practice to have standalone health insurance cover. “Having a comprehensive standalone health insurance policy ensures complete and continuous protection, which is not dependent on the tenure of an FD,” said Pathak. It provides better coverage across different situations.

You should consider buying an insurance cover that is much more holistic and has a higher sum assured rather than depending on the bundled cover with the FD scheme, he recommended.