What Is Hospital Indemnity Insurance?

Indemnity insurance plans are medical insurance plans where the insurer pays/reimburses the actual medical expenses incurred. When you buy a hospital indemnity plan, you select a maximum sum assured.

If your hospital expenses fall under it, the insurer will disburse the actual expenses incurred upon claim filing, subject to the nature of expenses, inclusions and exclusions of the policy, any copayment/deductible component, and submission of all necessary documents and expenditure proofs.

Let us understand this better with an example:

Mr Singh bought an indemnity insurance plan with a maximum sum assured of ₹5 lakhs. He had a deductible of ₹25,000. He was hospitalised for Covid-19 treatment, wherein the final bill amount was ₹2,50,000. Out of the total bill, his medical insurance plan did not cover expenses worth ₹20,000.

Since Mr Singh got hospitalised in a non-network hospital, he had to file a reimbursement claim. The insurance company paid Mr Singh ₹2,05,000:

₹2,05,000 = ₹2,50,000 (actual hospitalisation expenses) - ₹25,000 (policy deductible) - ₹20,000 (policy exclusions)

His sum assured was ₹5,00,000. He utilised ₹2,05,000. So, now he still has ₹2,95,000 unutilised, which he can use for future medical expenses during the ongoing policy term.

Now that we have discussed indemnity insurance meaning let us look at its benefits.

• High medical inflation affecting savings : Global medical inflation is growing at a steady rate of ~5% annually. Additionally, major medical treatments and surgical procedures cost a whopping amount and can make quality healthcare inaccessible to the middle-class population in India. The hard-earned money and tirelessly built savings can be exhausted by a single major medical expense.

An indemnity insurance plan pays out the actual expenses incurred. Therefore, policyholders can choose a sum assured that adequately covers their needs and family while also being easy on the pockets. The best hospital indemnity insurance plans will take care of the major chunk of the expenses, thereby protecting the finances of the family.

In the case of cashless hospitalisation, the family does not need to pay any amount apart from the deductible/copayment. With the indemnity benefit, the insurance company will pay off the bulk of the expenses.

• Wide coverage : A hospital indemnity plan can be a regular health insurance plan or a comprehensive medical insurance plan. In addition, it can be an individual plan, family-floater plan or senior citizen plan. The actual scope, extent and nature of coverage offered under an indemnity insurance plan will depend on the insurance company and the actual policy you choose.

If you opt for a comprehensive indemnity insurance plan, you will get coverage for a wide variety of health conditions, treatments and procedures.

For instance, the best hospital indemnity insurance plans with comprehensive coverage will include inpatient hospitalisation, domiciliary hospitalisation, daycare treatments, OPD expenses, pre+post-hospitalisation costs, ambulance charges, room rent, maternity expenses, global cover, consumables benefit and so on.

You can further enhance the coverage of an indemnity insurance plan with a choice of optional covers or riders that offer targeted coverage over and above the base plan.

• Extensive network of cashless hospitals : Health insurance providers that offer indemnity benefits with their plans tie-up with an extensive network of hospitals to offer hassle-free cashless treatment. For instance, Tata AIG offers cashless hospitalisation and treatment with indemnity benefits through a wide network of more than 7200+ hospitals under its Medicare range of medical insurance plans.

Network cashless hospitals allow you to avail of quality treatment and medical care without worrying about arranging funds for the treatment and spending a huge out-of-pocket amount. The major chunk of the actual treatment costs is paid by the insurer directly to the hospital. Additionally, with cashless hospitalisation, you do not have to worry about providing bills and receipts to the insurance company. The network hospital will take care of it.

• Low cost of purchase: The best hospital indemnity insurance plans offer a component of deductible or copayment whereby the policyholder can choose to pay a certain proportion or percentage of the claim amount through their own pockets. With a higher deductible/copayment, the liability of the hospital goes down. It passes on this benefit to the policyholder in the form of low premiums.

Thus, hospital indemnity plans allow policyholders to reduce their overall premium outflow and choose a policy that fits their budget.

We have already seen indemnity insurance meaning and the benefits of hospital indemnity insurance plans. As opposed to indemnity insurance plans reimbursing the actual medical costs incurred, defined benefit insurance plans pay out a predetermined lump sum amount, irrespective of the expenses incurred.

For instance, Mr Sharma opted for a Covid-19 health cover with a sum assured of ₹5,00,000. Upon diagnosis of the virus, the insurance company will disburse ₹5,00,000 to Mr Sharma, irrespective of the cost already or to be incurred.

So, which type of medical insurance plan should you opt for? Remember that neither plan is better than the other. They just both serve different purposes.

Fixed or defined benefit plans are great if you have a family history of or general susceptibility to a specific medical condition or illness. You can find out the average cost of treatment and buy a defined benefit plan covering that specific condition.

However, if you are looking for an extensive coverage plan that offers wider protection, covers a variety of illnesses and treatments, provides protection against a slew of medical expenses and comes with a pocket-friendly premium, then you should go for a hospital indemnity plan.

The benefits of health insurance cannot be stated enough. However, it is important to choose the right medical insurance plan to derive the maximum benefits.

We saw indemnity insurance meaning the benefits of hospital indemnity insurance and how it differs from fixed/defined benefit plans. So research well, analyse your needs and choose the best health insurance policy for your and your family’s protection.

If you are looking to buy health insurance online, check out the Medicare range of medical insurance plans from Tata AIG for comprehensive health coverage, cashless benefit across 7200+ network hospitals, indemnity benefits, 24x7 support, and much more.