Understand Fixed and Indemnity-based Health Insurance
Today, health and wellness have become buzzwords in India. Increased awareness of holistic health encourages people to pursue a healthier lifestyle. However, your defense against health conditions is deficient without a suitable health insurance plan.
As skepticism around insurance primarily arises from misinformation, we bring you this guide on health insurance plans. We will cover fixed benefit health insurance and indemnity medical insurance and all their intricacies.
So, let’s get started!
Fixed benefit health insurance plan: What you should know
A fixed benefit health insurance plan pays a specific stipulated sum for a predefined event that is insured. The plan extends a guaranteed and fixed amount to its insurer if he/she experiences an insured event as laid 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. Therefore, the utilisation of the claim amount is completely the prerogative of the policyholder.
Are there any benefits of buying fixed benefit health plans?
Medical emergencies elongate one’s duration of hospitalisation as well as necessitate a greater amount of funds. This is especially the case for someone diagnosed with life-threatening diseases, which are on the rise lately.
India has undergone a surge in cases of critical illnesses over the years. Additionally, a 2020 report by the Indian Council of Medical Research (ICMR) suggests that fatalities due to critical illnesses will only increase in the near future. Therefore, it is high time that we take due measures to safeguard your loved ones against such ailments.
Moreover, this is where fixed benefit health plans can be especially resourceful.
In the case of a critical illness policy, this health insurance plan will pay its policyholder the amount assured if the insured individuals contract any of the enlisted critical illnesses under the plan. Allow us to elaborate on this by way of an example:
Let’s say Ms. Verma signed up for a critical illness health insurance plan with an insured sum of Rs.10 lakhs. Within the policy terms, she was diagnosed with one of the critical ailments enlisted under the plan. Therefore, she will receive a lump sum of Rs.10 lakhs as a claim payout irrespective of the expenses she will incur. As she receives the total sum insured under the plan, the policy is terminated.
Furthermore, when opting for a fixed benefit health insurance plan, you should ensure that your plan effectively covers a range of likely diseases. Therefore, we suggest that you pick a plan, which covers at least some of the most common critical illnesses.
Additionally, the skyrocketing cost of medical care calls for one to be backed by a well-planned financial arrangement. Here, you can think about a fixed-benefit plan as an enhancement to your existing health cover.
It also caters to non-medical expenses that may arise due to loss of livelihood or a shortfall in earnings during hospitalisation and recovery time. Further, this plan is particularly beneficial for you if you are prone to certain medical conditions due to genetics or lifestyle, etc.
Indemnity-based health insurance plan
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.
These plans come with an array of policies, such as Critical Illness Policy, Daily Hospital Cash Policy, and Personal Accident Policy. As a result, they cater to a variety of medical needs.
Moreover, if an insured opts for a cashless hospitalisation plan, he/she requires paying only a certain fixed amount, and the insurer takes care of the rest. However, if this individual does not have a cashless hospitalisation plan, he would need to submit all receipts and bills to the insurer. Based on these documents, the insurance provider will reimburse the insured person.
What are the benefits of indemnity health plans?
Insurers of these health plans usually have tie-ups with a number of medical centres and partner hospitals. As a result, indemnity-based health insurance plans offer a high degree of flexibility when it comes to hospitalisation. Therefore, policyholders can conveniently choose to visit a specific medical centre or hospital without fretting about the cost of the care provided.
Additionally, these plans cover a broad range of illnesses and treatments alongside covering the actual cost of hospitalisation. The example below effectively sums up the benefits of a hospital indemnity insurance coverage:
Let’s say Mr. Sharma signs up for an indemnity-based health plan with an insured amount of Rs.10 lakhs. Within the policy terms, he gets hospitalised and is faced with a bill of Rs.3.5 lakhs. Here, Mr. Sharma will submit all hospital bills detailing the expenses incurred during his stay at the hospital. Upon assessing these documents, his indemnity medical insurance company will pay out Rs.3.5 lakhs.
Fixed benefit and indemnity-based health plans – A comparison
Now that you are familiar with these two health plans, let’s compare them through the following table:
| Basis of Comparison | Fixed Benefit Health Plan | Indemnity-Based Health Plan |
| Utility | This plan pays out the sum insured for pre-determined medical conditions or critical illnesses. | This type of health plan provides reimbursement to an individual for the money spent in medical treatment up to the sum insured. |
| Basic requirements | It requires a policyholder to be diagnosed with a pre-determined medical condition as per the policy terms, To claim the insured amount, one must provide a diagnosis report by a certified doctor. | Indemnity medical insurance typically requires the insured to be hospitalised or undergo medical treatment (day-care procedure or diagnostic tests), To make a claim, a policyholder must provide all hospital bills detailing every expense to the insurer or insurance company. Moreover, he/she must duly fill out and sign a claim form. This form requires several key details, such as the period of hospitalisation, date of discharge, etc. |
| Highlighting feature of the plan | Boosts cash flow by offering a lump sum payment. This payment is all the more resourceful in case of critical illnesses, whose treatment requires substantial funding, This plan serves as compensation for the loss of livelihood or earnings at the time of treatment and recovery. As a result, it allows the insured to cover household expenses, nursing costs and finance children’s education, Fixed benefit health insurance plans do not have sub-limits to avail coverage for a particular medical condition, The documentation process for a claim is simpler and easier than that of indemnity medical insurance, These plans come with an array of policies that cater to varied medical needs. | It offers extensive coverage for a wide range of ailments and medical treatments, Insured individuals can submit multiple claims in any given year till he/she utilises the entire sum insured, It extends the facility to choose between a variety of medical centres and hospitals alongside the added benefit of a cashless facility in some cases, Premiums under fixed indemnity health insurance plans are usually cost-effective. Moreover, the premium amount depends on a prospective policyholder’s age, his/her pre-existing illnesses, and features of the policy, among other factors. |
| Limitation of the plan | Eligibility for a fixed benefit health plan is limited to specific illnesses or ailments. Additionally, premiums for these plans tend to be more expensive than indemnity-based health plans. | Indemnity-based health insurance plans do not pay for deductibles as per the terms of their policy. In simpler words, this plan has particular items in the expenses list whose cost it shall not bear, like gauze, glove, oxygen mask, etc. Therefore, a policyholder must pay for these items in the event of hospitalisation, The documentation process for a claim is usually extensive, and thus, time-consuming. |
Is one better than the other?
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, tax benefits for both these plans are the same. Therefore, regardless of your choice, you can avail of tax deduction 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? We believe that this decision boils down to 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.
Parting thoughts
Taking care of your health and that of your family is a matter of 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.
Frequently Asked Questions
What is not covered under a regular indemnity health plan?
Indemnity-based health policies cover one’s cost of hospitalisation. However, it does not cover a number of expenses, such as the cost of medicines and post-operative care.
What is a fixed benefit health plan?
A fixed benefit health plan extends a guaranteed and fixed amount to its insurers when they face an insured event as per terms and conditions of the policy. Here, the payable insured amount is pre-decided and does not consider the actual amount of expenses incurred by the insured.
Is it good to buy health insurance?
Health insurance offers financial relief in the present by covering medical costs in the future. Therefore, it helps to be financially prepared and well protected against health emergencies.
Are insurance premiums tax-deductible?
Yes, insurance premium up to Rs.25,000 for non-senior citizens and Rs.50,000 in the case of senior citizens is eligible for tax deduction under Section 80D of the Income Tax Act, 1961.