Health insurance needs vary from person to person and largely depend on the age and lifestyle of the individual. People often ignore post-hospitalisation expenses, which can be higher than hospitalisation, while buying a health insurance plan. Choosing between indemnity and defined health insurance is often the talking point for health insurance seekers. Here is everything you need to know about indemnity based health insurance vis-à-vis defined health insurance plans and which one should you opt for.
Indemnity-based and defined benefit plans
The common perception is that health insurance is a financial instrument that offers a cover for expenses incurred when one is hospitalised. But since sometimes post-hospitalisation expenses can be far higher than the hospitalisation charges itself, health insurers have devised plans to cover for such expenses. Health insurance plans are therefore broadly classified as two distinct types namely indemnity-based and defined benefit-based to cover for both the scenarios.
Indemnity-based health insurance plans are those which offer coverage and eventual repayment of expenses incurred during hospitalisation as per the selected health insurance plan. Defined benefit plans offer a pre defined lump sum payout for a particular disease, irrespective of any pre- or post hospitalisation expenses. Common examples of indemnity based health insurance plans are Mediclaim policies or family floater plans while critical illness plans or disease specific plans are examples of defined benefit health insurance plans.
Comparing the two plans
Indemnity insurance plans offer repayment as per the submitted hospitalisation bills. For example, if you have an indemnity health insurance plan with a sum insured of Rs 5 lakh and hospitalisation bills amount to Rs 2 lakh, you will get a reimbursement of Rs 2 lakh post submission of bills. The remaining Rs 3 lakh will be available for the remaining health policy tenure. A defined benefit plan does not require submission of any bills and you are paid a pre-defined lump sum amount as per the plan. The money can be used towards pre- and post hospitalisation expenses. A diagnosis report signed by a medical specialist must be submitted for availing lump sum payout for such a plan.
On the downside, indemnity plans have a deductible clause which means that policyholder has to cover for some percentage of the hospitalisation expenses. Cost of post-operative care and medication is excluded in indemnity health plans. Defined health benefit plans usually offer a cap on hospital cash cover. So, if a policyholder opts for a defined health benefit plan, the payout per day will be as per the stipulated limit irrespective of the amount spent by the policyholder during hospital stay.
Choosing between the two
Both the plans have their advantages and choosing between the two must be correlated as per the individual health needs of a policy seeker. For example, if someone has a high risk of specific ailments that run in the family, a defined benefit plan may be the right choice along with an indemnity insurance plan to make for a comprehensive health cover.
Also, since chances of claim rejection in the event of a pre-defined cover are lower than indemnity based health insurance plans, doubling both policies gives a widespread cover towards any health eventuality. Balancing between both indemnity and defined benefit plans also ensures that any expenses towards pre or post-hospitalisation are also covered and health insurance does not remain limited to hospitalisation expenses alone. Choosing between an indemnity and a defined health benefit plan must be done as per the medical needs of the policyholder.
The writer is CEO, Bankbazaar.com