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Should You Buy a Hospital Indemnity Insurance?

Updated On Nov 11, 2020

Many first-time health insurance buyers are stumped by words like indemnity, defined benefits, etc. Sometimes it adds more confusion to the already apprehensive thought of availing of health insurance in the first place. Some knowledge about health insurance and the types of benefits provided may make it easier to decide.

What is Indemnity Health Insurance?

So, what is an indemnity insurance? Any insurance that reimburses the expenses is called indemnity insurance. For e.g. – If Shyam had to undergo an operation in the hospital for which the cost was Rs. 2 lakhs and he has an indemnity health insurance coverage of Rs. 3 lakhs, then his insurance will pay Rs. 2 lakhs that Shyam incurred as hospitalization expense. Shyam would have Rs. 1 lakh cover still remaining, in case he needs it for meeting additional expenses during the policy period.

What is Defined Benefit Health Insurance?

A defined benefit insurance differs from indemnity in that the benefit is a fixed amount. For e.g. – If Shyam has a critical care health insurance plan that covers Heart attack in which the defined benefit is Rs. 5 lakhs, then if Shyam suffers a heart attack, his insurer will pay him Rs. 5 lakhs.

Also read here:Everything You Need to Know About Health Insurance

Indemnity Health Insurance v/s Defined Benefit Health Insurance

Now, the next logical question could be – Which is better for me? The answer is – It depends. These two insurance products have different objectives. Often it is advised to go for both separately or an insurance plan, which combines both these benefits.

Why Should You Buy an Indemnity Health Insurance Plan?

There are a couple of reasons for choosing indemnity insurance plans, they include the following:

1. Rising Health Care Costs

Health care costs are steadily increasing. Medical inflation globally is growing at about 5% on a yearly basis. Most treatments that require surgical procedures cost a few lakh rupees. This is a significant expense for the average Indian middle-class family. An indemnity insurance takes care of this by replenishing whatever was spent. In case of cashless hospitalization, the patient doesn’t need to pay anything upfront, which is a significant relief.

2. Out-of-Pocket Expenditure

The huge out-of-pocket expenses can be avoided if healthcare coverage pays for hospitalization in case of accidents or illnesses. Even if there is a co-pay or deductible, it would still save a major portion of the cost.

3. Other Benefits of Indemnity Health Insurance

Additionally, indemnity health insurance provides benefits like:

  • Cost of treatment, supplies, consultation fees
  • Emergency Ambulance
  • Pre/Post-hospitalization care

4. Choice of a large network of hospitals across locations

There are a lot of other benefits in addition to the overall convenience and peace of mind.


While it is natural to feel that a health insurance is just an unnecessary expense, it only takes an unplanned hospitalization to realize the importance of Mediclaim. Sometimes a Mediclaim benefit is part of an employment benefit. In such cases, the policy needs to be compared with retail health insurance to understand coverage. Often it becomes necessary to avail additional coverage for parents and in-laws, and often critical care coverage needs to be bought separately. As mentioned above, a combination of indemnity and defined-benefit is the best option; however, at least a substantial indemnity based Mediclaim should form the basis of de-risking healthcare costs.

You may also like to read:Importance of Health Insurance Plans

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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