Indemnity-based health plans and fixed benefit plans come with their own set of benefits and are entirely different on the coverage they offer.
The cost of healthcare in India has witnessed a significant rise in the last two decades, thanks to the ever-growing demand for medical services across the country. In a country like India where the out-of-pocket medical expenses account for over 62% of the entire costs, the massive increase in the cost of healthcare will certainly erode one’s financial savings. Another contributing factor for the rise of healthcare cost is that India is home to around 17.5% of the world’s population, and roughly accounts for 20% of the global load of diseases. Considering these stats and the strenuous way of life we live, health insurance has become a basic need. However, what many reports state is that even after constant development and increase in awareness around health insurance, less than one-fifth of the country’s population is covered under a health cover.
While insurance pundits believe that one must buy a health insurance plan even before starting to invest for life goals, merely buying just about any health insurance plan may not be enough. It is important to buy a health insurance policy that rightly caters to your specific medical needs and requirements. But the truth is that in spite of the customer being relatively aware and conscious of what he wants from his health insurance cover, he is often confused between investing in an indemnity plan, which reimburses the hospitalisation expenses, or in a fixed benefit plan that pays a fixed sum irrespective of the expenses.
However, this dilemma is surely unwarranted as both, indemnity plan and fixed benefit plan, come with their own set of benefits and are entirely different on the coverage they offer. In simpler words, both these plans have their own uses and complement one another.
What are Indemnity Plans?
Going by the name, indemnity-based health plans basically indemnify the policyholder against hospitalisation expenses up to the total sum insured. Under the plan, the insured is reimbursed the actual expense incurred during hospitalisation only up to the total sum insured under the plan. If the insured has opted for cashless hospitalization plan, the insured only needs to pay a certain fixed amount and the rest is taken care by the insurer. However, in case the insured has not opted for the cashless hospitalization plan, the person needs to submit the necessary medical reports, bills paid, and other required documentation based on which the insurer reimburses the expenses.
You must learn that the plan will only pay the money that is spent on the treatment within the limits of sum insured. The regular Individual Health Plans or Family Floater Plans come under indemnity plans.
For instance, Mr Roy has a health policy with a sum insured of Rs 10 lakh. He gets hospitalized and his total expenses come up to Rs 4 lakh. In this scenario, the insurer will reimburse only Rs 4 lakh (subject to policy conditions) and the balance Rs 6 lakh may be used in case of further hospitalization during the policy period.
What are Fixed Benefit Plans?
Under a fixed benefit health plan, the insured is given a fixed and guaranteed amount equivalent to the sum insured in case of an occurrence of an insured event as per the policy terms. All such plans offer the insured a lump sum amount as claim irrespective of the actual or intended expenses incurred during hospitalisation. Fixed benefit plans do not work on the principle of indemnity and it is completely the prerogative of policyholder on how he wants to utilize the claim amount.
For instance, Mr Sharma opted for a Critical Illness Health Insurance plan with a sum insured of Rs 15 lakh. Within the policy term, he was diagnosed with one of the listed critical ailments under your plan. Now, the insurer will pay him a lump sum of Rs 15 lakh as a claim pay-out regardless of the amount of expenses incurred. Once the insurer pays the total sum insured, the policy will get terminated thereafter.
The following is a comparative table of 5 leading insurance companies providing Health Insurance cover of Rs 10 lakh sum assured for a 30-year-old male who earns between Rs 5 and Rs 7 lakh annually and lives in a metro city.
State of Critical Illnesses in India
In the last few years, the number of critical illness cases reported in India have seen a huge surge. A majority of these diseases are directly associated with factors such as lifestyle, hereditary, environment, etc. Talking about the numbers, one in three people in India fall prey to lifestyle related diseases, including cardiac ailments, diabetes and high blood pressure. As per a survey, while the number of cancer cases in India in 2017 was 15 lakh, the number is expected to cross 17.3 lakh by the end of 2020. On the other hand, cases related to heart ailments have gone up in almost every Indian state in the last two decades. The deaths due to cardiovascular diseases has grown by 34 per cent in the last few decades.
Need for Fixed Benefit Plans
It is not always important that a hospitalisation may only be for general treatment or a minor ailment that demands a stay for few days. There even can be some kind of medical emergency that apart from requiring extended stay at the hospital, needs great amount of funds to cope with the loss of income during the recovery stage. This is quite common when someone is diagnosed with a life-threatening disease such as cancer, paralysis or kidney failure.
Now, while the average cost of treatment of cancer may range between Rs 10 and Rs 20 lakh based on the stage of cancer, the treatment of heart-related ailments in India can cost you anywhere between Rs 4 lakh and Rs 10 lakh or even more in case of a heart transplant surgery. Spending such a massive amount in one go can be really difficult for an average middle-class household, and especially for a family with only one bread winner. For most people, getting this expensive treatment without being backed by a well-planned financial arrangement is beyond their financial capacity. In a quest to combat such massive costs of treatment and at the same time keep pace with the inflation rate, insurers came up with the concept of ‘Fixed Benefit Plans.’
Apart from paying a fixed lump sum amount to the insured on the occurrence of an insured event, fixed benefit plans even help the insured to get rid of such sub limits. Most importantly, a fixed benefit plan also caters to non-medical expenses which arise due to loss of earnings or livelihood during the treatment and recovery time. The lump sum amount received can be used to take care of expenses like frequent travel, household expenses, kid’s educational expenses, etc. All such plans are highly cost-effective and the premiums paid towards the purchase of all such plans is tax-free under section 80D of the Income Tax Act.
Here is a competitive analysis of the yearly premium for a CI cover of Rs 10 lakh for a 30-year-old non-smoker male residing in a metropolitan city.
The basic concept behind investing in a health insurance is to get adequate coverage and in order to make your health insurance cover much more comprehensive, it is very important to maintain a balance between Indemnity Plan and Fixed Benefit Plan. As both these plans have their individual advantages, choosing them must be correlated as per your specific medical needs. For instance, in case your family has a history of some specific critical illness, a fixed benefit plan (covering the illness) along with a regular health cover plan makes for a great choice. Moreover, considering the current style of lifestyle we all tend to follow, critical illness can happen to anyone at any age. Find out about your individual medical needs and take an informed decision while buying a specific health insurance cover.
(By Amit Chhabra, Head-Health Insurance, Policybazaar.com)