That's how it works,if your weapon does holy dmg then the passive increases that dmg by 10%. If your weapon has e.g. fire/arcane or w/e other element. dmg other that holy then the passive doesn't affect it. You will only get the healing part when you deal holy dmg.
Just a note: The "1% of your life when you deal holy damage" is for ANY holy damage, not just on your weapon. So if you have a weapon that deals say, fire damage, but are using a holy damage SKILL, you'll still get the 1% healing AFAIK.
So the passive is kinda usful even without a Holy Damage weapon, just not AS useful as it is with one.