Health insurance is a type of insurance that covers the cost of medical and surgical expenses incurred by the insured. It is an agreement between an individual and an insurance company, where the individual pays a premium to the insurance company in exchange for coverage for medical expenses. The goal of health insurance is to protect individuals from the financial burden of healthcare costs.
The importance of health insurance cannot be overstated. Healthcare costs have been rising steadily over the years, and it is now more expensive than ever to receive medical treatment. Without health insurance, individuals may have to pay out of pocket for medical expenses, which can be financially devastating. In some cases, individuals may be forced to forego medical treatment due to the high cost, which can have serious consequences for their health.
What is Health Insurance?
Health insurance is a type of insurance coverage that pays for medical and surgical expenses incurred by the insured. It provides financial protection against health risks. With health insurance, insured individuals (policyholders) are able to pay for the costs of their medical care in case of illness or injury.
How does it work?
A health insurance policy is essentially a contract between the insurance provider (usually an insurance company) and the policyholder (individual or employer). The policyholder pays a monthly/annual premium to the insurance company. In return, the insurance company agrees to cover or reimburse a portion of medical expenses if the policyholder gets sick or injured.
There are two main ways health insurance pays for medical costs – through reimbursement or cashless claims.
- Reimbursement: The policyholder pays the medical bills upfront and is later reimbursed by the insurance company after submitting the bills and documents.
- Cashless claims: The insurance company directly settles the bills with the hospital. The policyholder does not have to pay anything out of pocket. This is available at network hospitals that have an agreement with the insurance company.
What are the common components of a health insurance policy?
- Sum insured: This is the maximum amount the insurance company will pay out in a policy year. It is the total monetary limit of the insurer’s liability for that year.
- Premium: This is the amount paid by the policyholder to the insurance company in order to keep the health insurance policy active. Premiums are usually paid on a monthly, quarterly, half-yearly or annual basis.
- Sub-limits: Certain medical expenses like room rent, ICU charges etc. may have separate limits lower than the sum insured.
- Co-payment: A percentage of the admissible claim amount that the policyholder pays. For example, a 20% co-payment means the insurer pays 80% and the policyholder pays the remaining 20%.
- Deductible: The amount of out-of-pocket expenses to be borne by the policyholder before the insurance kicks in.
- Waiting period: A time-bound exclusion applied on pre-existing diseases or injuries. Claims related to the same will not be payable during the waiting period.
- Renewal: Health policies need to be renewed periodically, usually on an annual basis.
Why is Health Insurance Important?
Given the rising medical costs, having health insurance provides the following key benefits:
- Financial protection against high medical bills: Healthcare costs can be astronomical without insurance, especially in cases of critical illnesses, accidents or surgeries. Health insurance helps cover these expenses.
- Cashless access to quality healthcare: Large networks of hospitals offer cashless admission and treatment with no upfront payment obligations. This ensures quality care is not compromised.
- Tax benefits: Premiums paid towards health insurance qualify for tax exemptions under Section 80D of the Income Tax Act.
- Coverage for entire family: Family floater plans provide coverage for the policyholder, spouse and dependent children at lower premiums than individual plans.
- Pre-existing diseases covered after waiting periods: Ailments contracted before purchasing the policy are covered after stipulated waiting periods.
- Financial security: Assured medical cover takes away the risk of depleting savings or incurring debts in case of hospitalization.
- Lifelong renewability: Most health plans can be renewed throughout one’s lifetime, regardless of any health conditions.
Types of Health Insurance Policies
There are different types of health insurance plans available to suit various needs:
- Individual Health Insurance: Covers only the primary insured.
- Family Floater Policy: A single policy covers multiple family members at an aggregated sum insured. More cost-effective than multiple individual policies.
- Senior Citizen Health Plans: Tailor-made policies for those above 60-65 years of age with additional coverage benefits.
- Critical Illness Plans: Provides lump sum payment if diagnosed with specified critical illnesses like cancer, heart attack etc.
- Group Health Insurance: Coverage extended by employers to their employees as a part of employee benefits.
- Corona Kavach Policy: A standard COVID-19 health insurance policy launched by Irdai amid the pandemic.
So in summary, health insurance is a form of financial protection that ensures medical costs do not become unaffordable in case of hospitalization. It provides peace of mind and security against health-related financial risks.