Fixed Benefit and Indemnity Plans in Health Insurance

Fixed benefit plans pay out a set sum insured if an insured person files a claim for a particular medical condition. The plan extends a guaranteed and fixed amount to its insurer if he/she experiences an insured event as laid out by the policy terms.

Here, the insured event can be medical conditions or critical illnesses, such as cardiovascular diseases, kidney functioning issues, and cancer, among others. 

Moreover, a fixed-benefit health insurance plan extends a lump sum amount to the insured as a claim, regardless of the actual or intended expenses that he/she incurred during hospitalisation.

A Simple Example to Understand Fixed Benefit Health Insurance Plan

Think of a fixed-benefit health insurance plan like a set-price meal at a restaurant. No matter how much food actually costs, you get a fixed amount for each item on the menu. 

For example, imagine you have a critical illness health insurance plan that offers ₹50,000 for a hospital stay, regardless of the actual hospital bill. 

Now, let’s look at two different cases to understand how this works:

Case 1: If your hospital bill comes to around ₹40,000:

Since your insurance policy offers a fixed benefit of ₹50,000 for hospitalisation, you still receive ₹50,000, even though your actual expenses were lower. This extra amount can be used for post-hospitalization costs, medicines, or any other personal needs.

Case 2: If your hospital bill comes to around ₹60,000:

Since your policy provides a fixed payout of ₹50,000 for hospitalisation, you must pay ₹10,000 out of your pocket.

As the name suggests, an indemnity medical insurance plan indemnifies its policyholder against hospitalisation expenses. This plan reimburses the actual expenses incurred by the insured during hospitalisation. However, the plan reimburses these expenses only up to the total sum insured under it. A good example of this plan is Mediclaim, which is a popular insurance product.

Moreover, if an insured opts for a cashless hospitalisation plan, he/she only pays a certain fixed amount, and the insurer takes care of the rest. However, if this individual does not have a cashless hospitalisation plan, he must submit all receipts and bills to the insurer. Based on these documents, the insurance provider will reimburse the insured person.

Simple Example to Understand Indemnity-Based Health Insurance Plan

Think of an indemnity health insurance plan as a safety net for unexpected medical expenses, similar to how a company reimburses an employee’s travel expenses. Suppose an employee travels for work; they first pay for flights, hotels, and food, then submit the bills, and the company reimburses them. Indemnity health insurance works the same way! 

Suppose Mr. Mehta, a 45-year-old businessman, has an indemnity-based health insurance policy with a sum insured of ₹10 lakh. One day, he experiences severe abdominal pain and is diagnosed with appendicitis, requiring immediate surgery.

Scenario 1: If He Chooses a Cashless Network Hospital

• Mr. Mehta gets admitted to a hospital that is part of his insurer’s cashless network.
• The hospital directly coordinates with the insurance provider.
• Mr. Mehta only pays a small deductible or co-payment (if applicable), while the insurance company settles the rest of the bill directly with the hospital.

Scenario 2: If He Chooses a Non-Network Hospital

• Mr. Mehta is admitted to a hospital that isn’t in the insurer’s network.
• He pays the total hospital bill upfront, which amounts to ₹3.2 lakh.
• After discharge, he submits all hospital receipts, doctor’s prescriptions and medical reports to his insurer.
• After verification, the insurer reimbursed ₹3.2 lakh, ensuring that Mr. Mehta didn’t bear any financial burden.  

Medical emergencies often lead to prolonged hospital stays and significant financial strain. This burden is even greater for individuals diagnosed with life-threatening diseases, which have been on the rise in recent years.

In India, the prevalence of critical illnesses has seen a sharp increase. A 2020 report by the Indian Council of Medical Research (ICMR) predicts that fatalities due to such conditions will rise in the coming years (1). Given this concerning trend, it is essential to take proactive measures to safeguard yourself and your loved ones.

This is where fixed benefit health insurance plans prove to be particularly useful. 🙂

• Guaranteed Lump Sum Payout: The insured receives a pre-defined sum insured amount upon diagnosis, helping cover medical and non-medical expenses.
• Covers Non-Medical Expenses: The payout can be used for loss of income, post-hospitalisation care, travel for treatment, or any other financial needs.
• Acts as an Additional Financial Cushion: This plan enhances existing health insurance, ensuring comprehensive financial security.
• No Restrictions on Usage: The payout is not limited to hospital bills; it can be used as per the policyholder’s discretion.
• Beneficial for High-Risk Individuals: Added financial security can benefit those with a family history of certain illnesses or a high-risk lifestyle.
• No Impact of Rising Medical Costs: Since the payout is fixed, inflation or increased hospital charges do not affect the insured amount.

When it comes to managing medical expenses, indemnity-based health insurance plans offer a flexible and comprehensive approach to coverage. These plans reimburse actual hospitalisation costs, ensuring that policyholders can access quality healthcare without worrying about financial constraints.

One key advantage of indemnity health insurance is that insurers often have tie-ups with a vast network of hospitals and medical centres. This allows policyholders to choose from a wide range of healthcare providers for treatment without the burden of upfront expenses.

• Covers Actual Hospitalisation Costs: Reimburses medical expenses based on actual treatment costs, ensuring full financial protection.
• Flexible Hospitalisation Options: Policyholders can choose any network or non-network hospital, depending on the policy terms.
• Comprehensive Medical Coverage: This covers a wide range of illnesses, surgeries, and treatments, including pre and post-hospitalisation expenses.
• Cashless Treatment Facility: Many indemnity plans offer cashless treatment at network hospitals, reducing the hassle of out-of-pocket expenses.
• Renewable for Lifetime: Many indemnity plans come with lifetime renewal options, ensuring long-term healthcare security.

Both of these health plans are extremely distinctive and serve varied medical needs. Moreover, as observed in the table above, each of these plans has its benefits and drawbacks. 

Another aspect of evaluating these two plans can be their respective tax benefits. However, health insurance tax benefits for both these plans are the same. Therefore, regardless of your choice, you can avail yourself of tax deductions as per Section 80D of the Income Tax Act, 1961. Here, a premium up to Rs.50,000 for senior citizens and up to Rs.25,000 in case of non-senior citizens is eligible for a tax deduction.

So, which one should you opt for? 

This decision should be based on your needs and requirements. With a fixed indemnity medical insurance plan, you can achieve financial preparedness and higher protection for yourself and your family. 

Moreover, given that we live stressful lives today that make us vulnerable to critical illnesses, it would make sense to supplement your existing health policy with a fixed-benefit health plan.

Taking care of your health and that of your family is a matter of the greatest importance. However, it is common knowledge that medical care is currently expensive. Therefore, insurance plans offer you a way to evade hefty medical bills that can derail your finances. And we hope this guide provided you enough insight on the same and eliminated your hesitance to buy a health plan.