Fixed Benefit and Indemnity Based Health Insurance

There are two main types of health insurance policies. Fixed benefit policies are those that pay a fixed amount following a claim. Indemnity plans are those that provide reimbursement for the money spent on medical treatment.

Buying a health insurance policy has become a necessity nowadays, with the rising cost of health care and a sedentary lifestyle leading to more frequent trips to the emergency room. While there are a lot of options when it comes to picking a health insurance plan from both private as well as public insurance companies, the type of coverage and premium amounts play a key role in choosing a health insurance policy.

With health insurance being an additional expense, many of us would hesitate to buy a high premium plan that offers wide-ranging health coverage. For those of us who would like to benefit from extensive without having to pay a high premium regularly, fixed and indemnity based health plans come to the rescue.

What is a Fixed Benefit Health Insurance Plan?

A fixed benefit health plan is one where a fixed amount of funds (the sum insured) is paid out to cover expenses for a predetermined illness or condition that has been insured. The fixed benefit plan can be used as a supplement to a that provides an additional source of funds during a pre-insured health incident.

Benefits of Fixed Benefit Health Plans:

A fixed benefit plan can be used to cover a wide range of services, such as hospital cash policy, critical illness cover or personal accident cover. An individual can choose the provisions of the fixed benefit health plan based on the provisions of their existing health insurance plan. Thus, the fixed benefit health plan works as a filler to cover any possible expenses that are not covered by the regular health insurance plan.

A fixed benefit plan, unlike a regular insurance plan, does not have stipulations that govern the pay-out. Thus, expenses like post-hospitalisation and medicines which are not covered by regular health insurance policies can be covered by the fixed benefit plan.

Fixed benefit plans do not require the reams of documents and papers that are required when filing an insurance claim. Depending on the type of pre-defined illness, a diagnosis report from a physician or the policyholder contracting the specific illness is enough for the pay-out from a fixed benefit plan to be released in full.

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Drawbacks of Fixed Benefit Health Policies:

While a fixed-based health plan offers a fixed pay-out for a pre-insured occurrence, there is a possibility this could negatively affect the policyholder as well. For example, a policyholder chose hospital cash cover as the fixed-benefit health plan and stipulated a limit of Rs.2,000 per day towards expenses. In the course of this policyholder’s hospitalisation, a total of 4 days were spent in hospital and the total bill was Rs.30,000. However, under the plan, only Rs.6,000 will be released due to the limits put on the plan at the outset (each day being Rs.2,000).

What is an Indemnity Based Health Insurance Plan?

An indemnity-based plan is a health insurance plan that reimburses the policyholder the cost of medical expenses. These plans will reimburse the policyholder with the actual amount incurred as expenses during a hospitalisation stay up to the sum insured under the policy. For example, if a policyholder chooses a sum insured amount of Rs.4 lakh and is presented with a hospitalisation bill amounting to Rs.1.5 lakh, the insurance company will pay out Rs.1.5 lakh to the policyholder. The balance amount will be left unutilised for a future claim during the policy term.

In the case of an indemnity plan, the policyholder is required to submit hospital bills detailing the expenses incurred during the hospital stay. An example of an indemnity-based health plan is the ‘Mediclaim’ insurance plan, a popular health insurance product.

Indemnity-based health plans generally have a deductible, which is a fixed amount that is pre-decided. The deductible amount has to be paid by the policyholder for hospitalisation expenses, with the remainder amount being paid for by the insurance company up to the sum insured amount. Some indemnity-based plans do not have a deductible, with the insurer paying the full cost of the hospitalisation expense (up to the sum insured limit).

Benefits of Indemnity Based Health Plans:

Indemnity-based health plans allow flexibility when it comes to the hospital and health care professional, as they generally have tie-ups with a number of partner hospitals and medical centres. Thus policyholders can choose to visit a particular hospital or medical centre based on the type of treatment they are undergoing without having to worry about medical expenses. These plans also cover a wide range of treatments and illnesses and cover the actual amount of the hospital bill.

Drawbacks of Indemnity-Based Health Policies:

While indemnity-based health plans cover the cost of hospitalisation, there are a number of expenses they do not cover. These include the cost of post-operative care and medicines. Indemnity plans have a deductible (unless specified), resulting in the policyholder having to meet some portion of their expenses on their own.

 In conclusion, when buying a health insurance plan, it is imperative to have an indemnity-based plan to cover the cost of hospitalisation. For those who wish to extend their insurance coverage, opting for a fixed-benefit plan is a good idea as this plan will reimburse the policyholder for pre-decided incidents or illnesses up to the amount decided at the time of buying the plan.

GST rate of 18% applicable for all financial services effective July 1, 2017.

Disclaimer: Premiums may vary depending upon factors like age, location and prevailing taxes/GST.

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