What Is Indemnity Medical Insurance And How Does It Work?

What is Indemnity Insurance?

An indemnity health insurance policy, also known as a mediclaim policy, is where the insurance company agrees to compensate the insured for medical claims, such as hospitalisation expenses, domiciliary treatment expenses, and surgical expenses, based on the expenses already incurred. This type of health insurance is primarily based on the concept of compensation.

How does this work? 

When you purchase a health plan, the insurance company takes a specific premium amount for one policy year. Now, during the policy year, if the insured raises medical claims under any of the coverages, then the insurance company covers the cost of such claims, typically up to the sum insured amount based on the “actual expenses incurred”. 

Indemnity Insurance Simplified: Sakshi Sharma, a married woman from Delhi, purchased an indemnity health insurance plan for a sum insured of ₹10 lakhs. After two months of purchasing the plan, her husband got into a car accident, and the hospitalisation bill was ₹2.5 lakhs. 

The insurance company covered the entire amount. Weeks later, Sakshi herself was diagnosed with an infection in her stomach that required treatment. Her medical bills were around ₹3 lakhs, which was also paid by the health insurance company because the total amount was less than her total coverage, i.e.  ₹10 lakhs. 
Now, during the remaining policy year, Sakshi can utilise the remaining amount for other medical needs.

However, no money was paid out to her, as would have been the case in a fixed-benefit health insurance plan, such as a Critical illness plan. In that case, once the ailment is diagnosed, a fixed amount of money would be paid out to the insured, irrespective of the amount spent on treatment. This is the basic difference between a fixed benefit health insurance plan and an indemnity plan.

Benefits of Indemnity Insurance:

Purchasing indemnity health insurance comes with multiple benefits for the insured in the form of wide coverage, quick claim settlement, compensation up to the sum insured amount, etc. Let’s take a look at some of the benefits of indemnity health insurance:

Medical Coverage

This type of health insurance has become widely popular for its extensive coverage. Typically, these insurance plans include coverage for:

• Inpatient treatment
• Pre-and post-hospitalisation expenses
• Ambulance charges
• Room rent charges or ICU charges
• OPD cover
• Domiciliary coverage
• Day treatment coverage

Cashless Treatment

Under indemnity health insurance policies, the insured can also benefit from cashless treatment. Insurance companies have partnerships with several network hospitals, where insured individuals can easily access cashless treatment. This means that the insured does not have to pay for the medical bills out of their pocket. 

Affordable Premiums

When it comes to purchasing a health insurance plan, apart from coverage, the priority is always on finding affordable premiums. This is where an indemnity health insurance plan comes into the picture, as these are considered cost-effective. Additionally, most insurance companies also offer flexibility in choosing premium payment frequency.

Indemnity Insurance Vs Fixed Benefit Health Insurance 

If you are juggling between the idea of indemnity health insurance and fixed health insurance, then here’s a table for a quick comparison that can help you make an informed decision:

Details	Indemnity Health Insurance	Fixed Health Insurance
Purpose	Under an indemnity health insurance plan, the insurance company covers the expenses incurred on hospitalisation. This is typically up to the sum insured amount.	Under fixed health insurance, the insurance company provides a fixed or predetermined amount, which is typically a one-time payment.
Coverage	This type of health insurance is designed to offer wide coverage to the insured.	This type of health insurance is typically designed to cover the cost of certain treatments or offer a lump sum payment that can act as a second income source.
Cost	Under indemnity health insurance, the premiums are usually affordable and the policyholder has the option of choosing the frequency of payment.	In most cases, the insurance companies charge a slightly higher premium amount as compared to an indemnity health insurance.
Claim Settlement	Depending on the policy type, the insured can enjoy both reimbursement and cashless claim settlement.	The insurance company usually requires a thorough investigation report before making a lump sum payment.