Here’s your guide to understanding Fixed benefit and Indemnity based health insurance

In the last decade, health and wellness became big buzzwords in India. The pursuit for a healthier lifestyle encouraged people to adopt cleaner diets, exercise regularly, and make changes that were long pending. In fact, this boom was so huge that the fitness industry, which was erstwhile waiting to be organised, witnessed phenomenal growth and geared up for inflating demands. As per a CII-Deloitte India report [1], the fitness industry in India was expected to cross USD 1.1 billion by 2017. But despite this increased awareness, the road to holistic health remains an uphill climb- thanks to India’s lack of preparedness when it comes to health exigencies [2]. Working out and eating right might have scaled to the top of the priority list, but most Indians are still hesitant about taking the extra step of buying health insurance* cover to protect themselves from mishaps.

In fact, a 2017 study by actuarial and consulting firm Milliman, titled ‘Indian Life and Health Insurance Sectors,’ revealed that only 44% of the 1.3 billion people in India have a health insurance policy (as of 2017). It further revealed that while 76% of the population didn’t have any health cover in 2013-14, the number dropped to 56% during 2016-17. A huge chunk of the population thereby rely on their 'income or savings' or 'borrowings' to fund their treatment, leading to financial crises on many occasions. The situation gets worse in case of critical illnesses, considering India has one of the most privatized healthcare systems in the world, and 'out of pocket' expenses account for the bulk of medical spending. Substantiating this is the Call for action: Expanding Cancer Care in India report by Ernst & Young (July, 2015) that reveals that the baseline cost of cancer treatment is higher than the annual household income for over 80-85% of households in India. Further, cancer mortality rate is four to six times higher in India than the US. In a health ecosystem as volatile as this, insurance is second to none to gain a greater sense of control over our physical and financial health.

The need to buy Insurance tailored to one’s lifestyle requirements

In India, the lack of insurance penetration can be largely attributed to misinformation. A large section of the population, including people who are health-conscious, are clueless about what they should be looking for before purchasing health insurance or choosing the right insurer. Therefore, to avoid financial hardships related to medical expenses, it is important that we explore the various types of health insurance such as family health insurance, critical illness insurance, health insurance for senior citizens and more to consider a policy designed as per our age and lifestyle. Further, as we grow old, stress levels also increase and lifestyle diseases such as heart disease, diabetes, hypertension, stroke, and cancer among others could creep in. To smoothly tide over these issues, it is important to consider factors like age, the right combination of premium and coverage, hospitalization benefits, no-claim benefits, co-payment clause, claim benefits, and preventive health check-ups among others.

‘Indemnity Plan’ or ‘Defined Benefit Plan?’ Which is the way to go?

Due to the unpredictability associated with health ailments, simply buying health insurance might not always provide us with the safety net that we are looking for. For instance, our requirements from a health insurance policy changes depending on the seriousness of the medical emergency- whether it is a minor ailment or is life threatening, hospitalization duration, ailment management after being discharged from the hospital, etc. This rings the alarm bell to buy health insurance that covers both hospitalisation expenses and disease-related expenses. The best way to go forward is to customize your health insurance policy with the benefits of Indemnity Plans and Defined Benefit Plans.

As a textbook definition, an Indemnity Plan is a form of health insurance plan that reimburses the actual expense incurred during hospitalisation upto the pre-defined limit under the scheme. The amount that is reimbursed depends on the sum insured by the policyholder, which is the maximum amount of claim that the insurer reimburses subject to the policy conditions.  The unutilized amount after an indemnity claim is made can be leveraged for medical needs in the future.

Making private hospitalisation cheaper: Health insurance experts recommend Indemnity Plans as an essential form of health insurance for a variety of reasons. In India, the cost of healthcare is dear and private hospitalisation is enough to blow a hole into one’s lifetime savings. To add to it, the longer the hospitalisation, the heftier is the medical bill. This is one of the biggest reasons where an Indemnity Plan can come handy and ease the financial burden to a great extent.

More flexibility: By letting the insured choose the hospital, doctor, or the healthcare service provider of their choice, Indemnity Plans offer flexibility. This is because insurance companies that offer indemnity plans collaborate with a wide network of hospitals and doctors so that policyholders don’t have to compromise on their needs and choices by simply choosing a primary care doctor. Without the additional process of obtaining referrals, they can self-refer to specialists as well. In many cases, cashless indemnity health insurance plans also do away with the bill submission process which is performed by the hospital in question.

Wide range of hospitalisation pay-outs: An Indemnity Plan keeps policyholders at the forefront and covers the hospitalization treatment cost for several ailments. Because these plans cover the actual expense incurred during hospitalisation up to the sum insured, a policyholder can seek the best treatment depending on the payout that his/her policy offers.

Choose between family floaters or individual plans: Indemnity Plans are further divided into two categories- Individual Plans and Family Floater Plans. Individual plans have to be bought in the name of one individual- whether it is yourself, a parent, a spouse, or a child. The premium is based on the individual’s age and the sum insured. Many insurers also offer discounts if more than one member of the family is insured simultaneously. On the other hand, Family Floater plans allow more than one member to be covered under the same plan, with the premium being based on the age of the eldest member. Depending on the family medical history, including critical illness history, the right policy should be chosen. For instance, a family with no major history of chronic illnesses can opt for a family floater, but if the family has a critical illness history, or one individual has a serious health condition, individual plans are the right way forward.

Low premiums

The low premium rates of Indemnity Plans also make them popular among the masses. The insured usually avails a certain percentage of total cost incurred which reduces the risks for the insurer and allows the delivery of plans at lower premiums.

SUM INSURED AMOUNT CLAIMED REMAINING AMOUNT STATUS OF REMAINING AMOUNT

SUM INSURED AMOUNT CLAIMED REMAINING AMOUNT STATUS OF REMAININGAMOUNT

4.5 Lakh 80,000 3.7 Lakh Available for future medical needs

Fig 1: How Indemnity Insurance works

To encourage people to invest in Indemnity-based health insurance plans, many health insurance companies are revising their policies to offer the best to prospective policy buyers. Bajaj Allianz General Insurance Company, for instance, is at the forefront with a diverse range of affordable health insurance plans in India that are customized to take care of hefty hospital bills. Bajaj Allianz’s offerings have been curated based on the rising cost associated with medical care and come with a slew of benefits like cumulative bonus, free health check-ups, lifelong renewability, cashless treatment, and tax benefits among others.

Defined Benefit Plans: The Extra Booster

While Indemnity-based health insurance plans go a long way in easing the burden during a medical emergency, your health insurance coverage shouldn’t end there. For a 360-degree cover, it is necessary to further insure oneself with Defined Benefit Plans, a type of health insurance cover designed to provide financial safety against critical illnesses. Here, the entire sum insured gets paid to the policyholder if a predefined ailment sets in. This plan doesn’t include hospitalisation charges and offers a lump sum payment to the policyholder. This pre-defined payment is independent of the expenses incurred during treatment and requires the policy holder to submit only the diagnosis report by a certified doctor to claim the amount. This plan gives the insured the flexibility to use the lump sum amount as per one’s convenience. Hospital Daily Cash plans are also based on the ‘Defined Benefit’ model and payout for the number of days a policy holder has been hospitalized.

If you are looking for all-round health insurance, it is necessary that you supplement your Indemnity Plan with a Defined Benefit plan. This way, you stay financially protected regardless of the type of medical emergency that you might face. Most of the time, when a critical illness occurs, a patient needs to stay at a hospital for a substantial period of time, post which recuperative treatment begins. A combination of Indemnity-based and Defined-benefit health insurance plans comes handy at a time like this when the money required to cope with the loss of income during the recovery stage is high. In addition to the lump sum paid, a critical illness insurance plan or a Defined Benefit plan also helps in combating non-medical expenses like treatment cost and other domestic expenses etc. Further, the premiums for defined benefit plans is also tax-free under section 80D of the Income Tax Act. It is important to note that various factors like age, medical history, body mass index, occupation etc. go a long way in affecting one’s health insurance premium- whether it is indemnity based or defined-benefit based. It is important to consider one’s personal, family, and medical history before choosing the appropriate plans. You can use a health insurance premium calculator online before taking the step ahead.

Leading insurance companies like Bajaj Allianz also offer a slew of critical illness insurance plans or Defined Benefit Plans that you can consider. Your Indemnity Based plan can be topped up with a Defined Benefit Plan to yield the best health coverage and pave the path towards a healthy and secure life. Most financial experts are of the opinion that health insurance should be bought the day you start earning. And why not, if it helps you take the leap towards a protected future?

It’s time to embark on the journey with Bajaj Allianz.

Source: The Times of India