(Source: iiflinsurance.com)

There are a lot of options when it comes to buying a health insurance plan, the main type to choose from is an indemnity-based health plan, and there are also fixed benefit plans. So, let us take a look at indemnity plans as well as fixed benefit plans and understand which one would be more suitable for your needs. 

An indemnity-based health insurance plan is a type of plan where the insurance company will reimburse you for the medical expenses incurred for hospitalization or other treatments, up to the sum insured amount.

This sum insured is decided between the policyholder and the insurance company, and it is the maximum amount you can get in the event of a claim. Most regular health insurance plans are indemnity-based plans, including individual health plans, family floater plans, and more.

As mentioned above, under these kinds of plans you will get a reimbursement for the cost of hospitalization or medical treatment up to the sum insured.

So, let’s look at an example. Say you have an indemnity-based health insurance policy with a sum insured of ₹5 lakhs, and you undergo treatment in a hospital that costs ₹2 lakh. In this case your insurer will compensate you for these expenses. You just have to submit the relevant bills and medical documents. The remaining ₹3 lakh can be used for further medical expenses during the policy term.

However, note that this reimbursement will not cover any deductibles or co-payments included in the policy. For example, if you have a 15% copay, your insurer will pay 85% of the claim amount, while you bear the rest. On the other hand, if you have a deductible of ₹20,000, your insurance company will reimburse ₹1.8 lakh, while you pay out the rest.

There are a number of benefits to an indemnity-based health plan:

• Extensive coverage – these plans cover a wide range of illnesses and treatments.
• Flexibility to choose hospitals – you have the flexibility to choose from various hospitals and medical centers, so you can choose the best option based on the type of treatment you require.
• Cashless claims – the insurer may also have tie-ups with network hospitals, where you can enjoy cashless claims.
• Ability to make multiple claims – you can make multiple claims under the same policy, up to the sum insured amount.

Affordable premiums – generally indemnity plans have more cost-effective premiums, as they may include deductibles or co-payment clauses.

As mentioned above, under these kinds of plans you will get a reimbursement for the cost of hospitalization or medical treatment up to the sum insured.

So, let’s look at an example. Say you have an indemnity-based health insurance policy with a sum insured of ₹5 lakhs, and you undergo treatment in a hospital that costs ₹2 lakh. In this case your insurer will compensate you for these expenses. You just have to submit the relevant bills and medical documents. The remaining ₹3 lakh can be used for further medical expenses during the policy term.

However, note that this reimbursement will not cover any deductibles or co-payments included in the policy. For example, if you have a 15% copay, your insurer will pay 85% of the claim amount, while you bear the rest. On the other hand, if you have a deductible of ₹20,000, your insurance company will reimburse ₹1.8 lakh, while you pay out the rest.

A fixed benefit health insurance plan (also called a defined benefit) is a type of health insurance where a fixed amount of the sum insured is paid at the time of a claim.

Common examples are critical illness plans and personal accident policies, where you will receive a lump sum amount. For example, if your sum insured is ₹5 lakhs, upon diagnosis of pre-determined critical illnesses, or after an accident, you will receive the entire ₹5 lakh, that you can then use to cover treatment expenses.

The benefits are that there are no sub-limits or co-payments, and the lump sum payment means that it can be used for pre- or post-hospitalization expenses. However, it only covers some specific ailments or illnesses.