Term of the week: Fixed-benefit and indemnity plans

Health insurance policies can be broadly placed under two baskets — fixed-benefit health plans and indemnity plans.

An indemnity-based plan is a health insurance plan that reimburses the policyholder the actual expenses incurred on hospitalisation, up to the sum insured (SI) under the policy. To claim the benefits under the policy, the policyholder is required to submit proof of bills from the hospital where he/she was admitted. Regular health plans, also called medi-claim plans, are an example of indemnity plans.

A fixed-benefit plan, on the other hand, is one where the SI is paid out when the policyholder reports any pre-defined conditions (illnesses) under the policy. The benefit amount received from the insurer can be used to pay hospitalisation as well as non-hospitalisation expenses and also those that a basic medi-claim policy doesn’t cover. There is no stipulation on how the SI has to be used. Critical illness polices and hospital daily-cash policies (which provide a fixed daily sum for each day of hospitalisation) are examples of fixed-benefit plans.

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