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Why it makes sense to combine a hospital cash plan and indemnity-based health insurance?

Vinod Mehta, a 40-year-old, working professions was in for a shock when he had to be hospitalised suddenly because of an excruciating pain in his stomach. He was discharged almost after a week. Apart from hospital bills of Rs. 90,000, there was an additional cash expense amounting to Rs. 15,000. This included his wife’s hospital travel costs, her meal expenses, a babysitter’s fees for their daughter since she couldn’t be left unattended at home nor brought along to the hospital.

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Unfortunately for Mehta, his insurance policy did not cover such additional expenses. So, he had to pay these out from his own pocket. Some days later, his friend Raghav paid him a visit. During their conversation, Raghav got to know how Mehta had to pay for hospitalisation expenses on his own. That’s when Raghav introduced him to a health insurance product, known as hospital cash plans.

Here are all the answers he offered to Mehta’s questions and you should know too.

How are they of value to me?

The costs associated with medical treatments are quite high these days, and they are only rising. There are bed charges and medicine bills, of course. But hospitalisation may involve many other miscellaneous expenses too, such as loss of income, in case you need to avail Leave Without Pay. Also the existing health insurance plan might have sub-limits. While your health insurance policy may exclude these expenses, a hospital cash plan can provide some relief here.

Related: Health insurance for dummies: 7 essential questions and answers

Furthermore, Hospital cash plans pay you a pre-defined, fixed amount per day, throughout your period of hospitalisation. Unlike indemnity-based health insurance, it is not based on the concept of reimbursement.

Hospital cash plans can reduce treatment costs as they cover certain expenses that health insurance or medi-claim does not.

• Health insurance is an indemnity plan, but a hospital cash product is a defined-benefit plan.
• While a health insurance policy only pays the actual hospitalisation expenses incurred, a hospital cash plan pays you towards cash expenses, basis the number of days you are hospitalised. This is irrespective of the expenses you incur.
• When it comes to mediclaim, you have to choose the sum assured. For a hospital cash plan, you must decide the daily amount for which you want to be covered.

For example, let’s say you have a hospital cash policy that pays you Rs. 1500 per day, if hospitalised. Now, whether your per day hospitalisation bill amounts to Rs. 1000 or Rs. 2000, this plan will pay you the pre-decided figure, i.e. Rs. 1500.

To summarise, benefit products complement a health insurance policy, by offering you more assistance when the time comes. Therefore, it is wise to buy a hospital cash plan that suits your need as an add-on over and above your individual or group insurance scheme. This allows you to avail of benefits from both plans simultaneously.

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What are its additional benefits?

• In case of hospitalisation, these plans provide a lumpsum amount that can be used for paying inadmissible expenses such as X-Ray and surgical accessory costs, which aren’t covered under medi-claim policies.
• Hospital cash plans can reduce the financial burden that comes with very large claims that may not be entirely covered by health insurance. These plans can be used to cover any extra claims.
• Tax exemption benefit under Section 80D for the premium paid.
• The plan can also be used to pay off minor hospitalisation bills, instead of making a claim from a health insurance plan, thus keeping the health insurance No Claims Bonus feature intact.
• Some plans may double the daily cash allowance if the policyholder has been admitted to the ICU. However, this condition may differ from insurer to insurer.

What to consider when buying a hospital cash plan?

• Customise the coverage as per your needs, in terms of maximum number of days and the daily amount
• Find out the product-specific conditions that make you eligible for filing a claim
• Be aware of the documentation needed to file a claim at the time of purchase itself
• Check the ‘Look period’ option, which allows you to cancel the policy if the terms and conditions or cover does not suit you. However, this is only possible if you have made no claims, and within a certain number of days.

Related: Think your group health insurance is enough? Think again

What is the bottom line?

You can include the hospital cash rider in your health insurance policy or opt for a standalone policy. It does not replace health insurance policy, but is an add-on that will protect you from incidental expenses during hospitalisation.

Disclaimer: This article is intended for general information purposes only and should not be construed as investment, insurance, tax or legal advice. You are encouraged to separately obtain independent advice when making decisions in these areas.
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