What is Indemnity Health Insurance Plan, Meaning & Its Benefits?
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.
How Do Indemnity Plans Work?
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 in health insurance 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.
What are the Benefits of Indemnity Health Plans?
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 centres, 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.
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What are the Drawbacks of an Indemnity Health Policy?
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.
What are Fixed Benefit Health Insurance Plans?
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.
Difference Between Indemnity & Fixed Benefit Plans
| Parameters | Indemnity Plan | Fixed Benefit Plan |
| What is it? | The insurer will reimburse you for medical expenses incurred for hospitalization or other treatments, (up to the SI). | Upon diagnosis of a critical illness or certain medical conditions, the insurer will make a lump sum payment (of the entire SI). |
| What is covered? | It offers coverage for several diseases, medical conditions, and treatments | These plans are limited to specific critical illnesses and conditions. |
| What can it be used for? | The compensation will only cover your hospital bills, and some expenses will not be covered, for example, post-hospitalization expenses. | You can use the compensation amount for any purpose, including post-hospitalization, medication, household expenses, children’s education, etc. |
| What is needed for a claim? | When you make a claim, you will need to submit all relevant hospital bills, medical documents, etc. | Fewer documents are required, usually just a diagnosis report from a registered medical professional. |
| How many times can you claim? | You can make multiple claims during the year until the entire sum insured is used. | When you make one claim, it usually uses the entire sum insured amount. |
| Do you have to pay anything? | The claim amount may be subject to deductibles, co-payment clauses, or sub-limits meaning you may have to pay some portion of the expenses on your own. | There are no deductibles or sub-limits included in the claim amount. |
| How much is the premium? | The premium is more cost-effective. | The premium is usually higher. |
| Are there any other benefits? | Insurers can tie up with network hospitals and offer cashless claims. | The benefit amount can be used to cover any expenses that are not covered by a regular health insurance plan. |
So, when you are buying a health insurance plan, ensure that you get the one that provides optimum protection. In most cases, an indemnity-based plan will offer the most coverage as it covers more ailments, as well as hospitalization at a lower premium. However, if you already have some type of health cover, a fixed-benefit plan will offer additional financial protection.
Thus, look at your situation and your healthcare needs, as well as your and your family’s medical history, before you decide which one is best for you.
FAQs about Indemnity Health Insurance
What are the disadvantages to indemnity health insurance?
There are a few drawbacks to indemnity health insurance. For example, it has higher premiums, and due to co-payments or deductibles, you may also have more out-of-pocket expenses. Additionally, some costs like pre-hospitalization and post-hospitalization expenses may not be covered
How do you know if an indemnity health plan is right for you?
If you do not have any previous health insurance, or you are looking for a plan that covers a wide range of illnesses and treatments, an indemnity health insurance might be right for you.
Is indemnity health insurance better than fixed benefit insurance?
This depends on your current situation and your healthcare needs, as the two types of policies are unique. If you need a health insurance with wider coverage (for example as your primary cover), it is advisable to opt for an indemnity-based plan. However, if you are looking to supplement your regular health cover and gain additional coverage for critical illnesses, it might be right to opt for a fixed benefit health insurance plan.
Should I get indemnity health insurance or fixed benefit insurance if I have employee health insurance?
Some employee health insurance plans might have insufficient coverage, especially when it comes to out of pocket for expenses like deductibles, co-pays, etc. Additionally, they might not offer coverage for certain health conditions. Check the coverage you already have, if you need a second insurance to cover any gaps opt for an indemnity insurance, but if all you need is additional coverage, you might wish to opt for a fixed benefit insurance.