5 MinsJan 29, 2021
Having adequate health insurance is an important aspect of financial planning. But many of us shy away from buying health insurance because (a) we feel our employer-provided health insurance is adequate or (b) we find it difficult to understand
what kind of health insurance policy is suitable for us. As a result, we may end up buying a health cover that fails to meet all our needs.
The most commonly known and bought health insurance is the Indemnity-based Health Insurance Plan. It is also popularly known as “Mediclaim’. But there is also another type of health insurance, Fixed Benefit Plan or Defined Benefit
Plan. Let us see what the differences are, which is useful under what circumstances and how to make the claim.
Indemnity-based Health Insurance Plan
This type of plan provides reimbursement for the money spent on medical treatment up to the sum insured. Since this typically requires you to be hospitalised or at least undergo some kind of medical treatment (diagnostic test or a day-care procedure),
to make the claim you have to submit all hospital bills (detailing all expenses) to the insurer/insurance company, with the claim form duly filled and signed. The claim form should have details of the number of days spent in the hospital,
the date of discharge, etc, as per terms of the insurer. If you opt for the cashless hospitalisation facility, the insurance company reimburses the hospital directly against the bill raised.
However, this plan will not pay for the deductibles as per the terms of the policy. In other words, there would be certain items in the expenses list (viz. gloves, gauze, oxygen mask, etc.), whose cost the insurer will not bear. Instead, you will
have to pay for that on your own. Let us assume that your indemnity-based health plan has a sum assured of Rs 5 lakh and you make a claim of Rs 3 lakh. As per the bills submitted, the cost of the deductibles works out to Rs 50,000. In
this case, the insurance company will reimburse Rs 2.5 lakh. Most ‘Mediclaim’ policies available today are Indemnity-based Health Insurance Plans. You have the option to go for a separate mediclaim insurance to cover every family
member or choose a family floater with a single sum insured (floating).
[Also Read: Six benefits of a family floater health insurance policy]
Merits:
• Offers extensive coverage for several ailments and medical treatments
• Provides the flexibility to choose from a list of various hospitals and medical centres, with the added benefit of a cashless facility in some cases
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You may make multiple claims in the year until the entire sum insured is utilised
• The premium paid is cost-effective (depending on the features of the policy, age, and pre-existing illnesses among other factors.
Demerit:
It is subject to deductibles, which means the policyholder may have to pay for certain expenses.
Fixed Benefit Health Insurance Plan
Under this type of health insurance plan, also known as Defined Health Benefit Plan, a fixed amount is paid out of the sum insured for pre-determined critical illnesses or medical conditions (viz. cardiovascular disease, cancer, kidney functioning
issues, etc).
If you have certain medical conditions or are prone to certain medical conditions (due to family history, lifestyle, etc) then such a plan is particularly useful. This is because when diagnosed, the insurance company usually pays a large part
of the sum insured upfront in a lump sum––irrespective of the actual or estimated medical expenditure. To claim the amount you have to submit the diagnosis report by a certified doctor.
The pre-defined payment is independent of the expenses incurred during treatment, so there is no question of any sub-limits.
Say, the sum insured under the Fixed Benefit Health Insurance Plan is Rs 5 lakh. On the diagnoses of the said medical condition or critical illness and submission of diagnosis report by a certified doctor, you will receive the entire Rs 5 lakh.
It is advisable to choose a Fixed Benefit Health Insurance Plan that covers a wide range of common critical illnesses and medical conditions.
Merits:
1. A lump sum payment on diagnosis provides a boost to your cash-flow and helps address those critical illnesses or medical conditions sooner (on diagnosis).
2. It may serve as a compensation for the loss of earnings or livelihood
during the time of treatment and recovery––which to an extent helps take care of household expenses, children’s education, and nursing at home
3. There are no sub-limits to get coverage for the specific medical condition
4. Post-hospitalisation expenses can be well-addressed
5. Documentation for the claim is comparatively easier and simpler
6. There are an array of policies––Daily Hospital Cash Policy, Critical Illness Policy, and Personal
Accident Policy––for every need
Demerit:
Eligibility for this plan is limited to specific ailments or illness. Premiums for these plans are typically more expensive than the Indemnity-based Health Insurance Plans.
Is one better than the other?
Not necessarily, because the two are unique. Given that we live stressful lives today and are vulnerable to critical illnesses or medical conditions; it makes sense to supplement your normal “Mediclaim Policy” (which is an Indemnity-based
Health Insurance Plan) with Fixed Benefit Health Insurance Plan.
Evaluate any health insurance plan keeping in mind your and your family’s medical history, the city you live in, coverage for pre-existing diseases, network hospitals,
whether the cashless facility is available, exclusions in the policy, sub-limits on room rent, No Claim Bonus and claim settlement ratio of the insurer.
The tax benefits for both kinds of health plans are the same. Premium up to Rs 25,000 in case of non-senior citizen and up to Rs 50,000 in case of senior citizens is eligible for a tax deduction as per Section 80D of the Income Tax Act, 1961.
There are numerous general insurance companies offering health insurance plans. Axis Bank has tied up with leading health insurers offering a range of health insurance plans so that you and your family members are financially prepared
and well protected.
Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm. Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision
