What is Health Insurance: Meaning, Types & Benefits

What is Health Insurance?

In a country like India, where healthcare costs are on a persistent rise, protecting your health and finances should be a top priority. Health insurance is an agreement between you and the insurer (the insurance company), wherein the latter promises to partially or fully pay for your healthcare costs against a sum paid to them (premium) to them.

According to a World Bank report, out-of-pocket medical expenses were highest in India in 2021, amounting to almost 50% of total healthcare expenditure[1]. This illustrates that half of the Indian population usually faces sudden healthcare expenses.

Health insurance is a financial tool that prepares you precisely for this.

Who can buy a Health Insurance Plan?

Anyone who is over 18 years can purchase a healthcare policy. For children, it starts from 1 day or 90 days, depending on the insurance provider.

How Does Health Insurance Work?

When you buy health insurance, the insurer provides financial protection up to a specified sum. The sum insured is the maximum amount you can claim from an insurer against the covered medical expenses within a year. For this, you have to pay the insurance company a premium amount, which is set according to your age, health condition, income, and the insured limit. This amount is paid at agreed periodic intervals, which can be monthly, quarterly, half-yearly, or yearly.

When you incur medical expenses covered under your health policy, the insurer pays or reimburses this amount, subject to the terms and conditions of the policy.

For instance, if you buy insurance of ₹5 lakhs annually, and after some months, you incur a medical surgery of ₹2 lakhs. If your policy covers this surgery in full, the insurer will pay the entire surgery cost to the hospital, and you will have to pay just the non-inclusion costs. Say, if the insurer covers only 80% of the costs, then the insurance company will pay ₹1,60,000, and you will have to pay only ₹40,000 out of your pocket.

Healthcare policies in India cover a wide ambit of medical expenses, such as surgery costs, room rent, hospitalisation charges, day-care procedures, doctor consultations, etc. It is to be noted that not all medical expenses are covered under health insurance. Hence, you must thoroughly read the coverage details when buying a policy.

Benefits of Health Insurance

Here is why having health insurance is essential:

1. Fights Rising Medical Costs

   It helps you manage rising healthcare costs in India. Whether it is a planned medical treatment or an emergency, health insurance provides financial security in both situations.

2. Covers Hospitalisation Charges

   It covers charges associated with hospitalisation, such as room rent, medical procedures, surgery, diagnostic tests, day-care procedures, nursing, etc. It also covers ambulance charges in case of any medical emergency.

3. Covers Pre & Post-Hospitalisation Charges

   Health insurance covers not just the expenses incurred during hospitalisation but also pre- and post-hospitalisation charges. It covers expenses incurred within 30-60 days before hospitalisation and those incurred 60-90 days after discharge. Some policies may also offer post-hospitalisation up to 120 days.

4. Critical Illness & Modern Treatment Coverage

   It protects against critical illnesses that demand expensive, long-term treatment. Medical plans also cover modern treatments like robotic surgery, stem cell therapy, chemotherapy, immunotherapy, bronchial thermoplasty (BT), and deep brain stimulation, which are otherwise extremely expensive.

5. Cashless Claim

   With a cashless claim, you can undergo the required medical treatment without having to make upfront payments. The insurer pays the medical expenses directly to the hospital while you can prioritise your treatment.

6. Tax Benefits

   Health insurance allows you to receive tax benefits under Section 80D. The amount of tax benefits is calculated on the premium amount you pay and depends upon the age group of the beneficiaries (self & family and parents).

Read more about it here: Benefits of health Insurance

Different Types of Health Insurance

Below are the most common types of health insurance policies offered by insurers in India.

1. Individual Health Insurance

   An individual health insurance plan is a policy that provides medical coverage for a single person. If you want your family to be covered, you must purchase an individual health insurance policy separately for each family member, as its premium and benefits cannot be shared.

2. Family Health Insurance

   As the name suggests, family health insurance provides coverage to your entire family under a single policy. The policy is offered on a floater basis, implying the sum insured is shared among the family members. By paying the single premium, the benefits can be availed by any one or more members of the family in case of medical treatments and emergencies.

3. Senior Citizen Health Insurance

   It is an insurance explicitly designed to cover the medical expenses of people over 60. Senior citizens may require frequent medical aid, thus needing more financial protection. Regular health policies may not be sufficient to cover such hefty expenses. Hence, having separate health insurance for senior citizens is a good idea.

4. Critical Illness Insurance

   Treatments for critical illnesses, such as cancer, stroke, paralysis, renal failure, etc., are often long-term and exorbitant, requiring more finances than regular ailments. A basic healthcare plan may not provide adequate coverage for such huge costs. A critical illness insurance cover allows you to pay for your medical bills and take care of other financial responsibilities in an unfortunate case of such serious, life-threatening diseases.

5. Maternity Health Insurance

   Maternity health insurance offers financial assistance for all pregnancy-related costs. This includes expenses incurred for normal or C-section delivery, hospitalisation, pre and post-natal care, medical tests, etc. It also covers newborn baby expenses.

Basic Health Insurance Terms

Let us have a look at some of the primary health insurance terms that everyone should be familiar with:

How to Choose a Right Health Insurance Plan

With a swarm of policies offered by health insurance companies in India, it may become challenging to determine the right health policy. Below are some factors that you must consider while choosing the ideal medical policy:

1. Sum Insured

   With the inflating medical costs, choosing a plan that provides security against these expenses is essential. The higher the sum insured, the higher the chances of comprehensive coverage of medical expenses.

2. Coverage and Exclusions

   Another crucial influencing factor when choosing health insurance is its coverage and the exclusions, implying the medical services and treatments it covers and does not cover, respectively. Consider your medical history (or your family's medical history when buying a family floater plan) to ensure the policy covers all or most of the critical services you may need in future.

3. Age and Health Conditions

   Your sum insured and premium usually depend on your age and health conditions. Hence, they are among the most critical factors when purchasing a healthy policy. This is true especially in cases where you are buying a family floater plan as the premium is decided per the age and health conditions of the eldest family member.

4. Waiting Period

   Choose a plan with a shorter waiting period for pre-existing diseases (PED) to ensure all your medical needs are taken care of timely.

5. Co-payment

   If you choose a policy with a lower co-pay, your premium cost may increase, but the amount you need to pay at the time of claim decreases. And it is vice versa if you choose a higher co-pay, where your premium amount decreases, but the share you have to pay at claim settlement increases. Some plans may also come with a zero co-payment option. You must choose the option that best suits your budget.

6. Insurer's Claim Settlement Ratio

   It refers to the number of claims the insurer has settled against the received requests. Hence, it shows the trustworthiness and reliability of the insurer. A high claim-settlement ratio means that there is a higher chance of your claim to get approved.

7. No-Claim Bonus

   Choosing a policy that offers the no-claim bonus (NCB) provides additional financial security by increasing your coverage or reducing your premium. Thus it plays a critical factor when selecting a health insurance plan.

8. Network Hospitals*

   An insurer with an extensive network of hospitals ensures you have many options for cashless treatment as in this case the insurer will pay your medical bills directly to the hospital, and you will have to spend no or little money out of your pocket.

*Note: Per the new government initiative ‘Cashless everywhere,' you can now get cashless treatments even at the insurer's non-network hospitals, provided you meet all the other terms and conditions. Yet, we recommend you choose a health insurance plan with a wide network of hospitals for the much-required peace of mind at that time.

Final Thoughts

Health insurance is a crucial investment for securing your and your family’s well-being. Choosing the right plan can save you from unexpected medical expenses while ensuring access to top-quality healthcare.

Common FAQs About What is Health Insurance