What is Fixed Benefit and Indemnity based Health Insurance?

Health insurance plans are offered in two broad variants – indemnity plans or fixed benefit plans.

Indemnity based health insurance

Indemnity oriented health insurance policies are those that cover the actual medical bills. These policies seek to compensate for the financial loss that you suffer due to a medical contingency. All normal health insurance plans, that cover hospitalisation, are offered as indemnity oriented health plans. These plans cover your medical bills up to the sum insured. 

For example, say you buy an indemnity policy of Rs.5 lakhs. You are hospitalised due to an illness and your medical bills amount to Rs.1.75 lakhs. The health insurance policy would cover Rs.1.75 lakhs in claims even though you had a higher sum insured. This is because the actual costs that you suffered were Rs.1.75 lakhs and not Rs.5 lakhs.

Common indemnity oriented health insurance plans available in the market include the following –

• Individual health plans

• Family floater health insurance plans

• Senior citizen health insurance plans

• Disease-specific health insurance plans like plans designed for covering diabetics, heart patients, dengue, etc.

• Top-up or super top-up health plans

• Corona Kavach policy

• Arogya Sanjeevani Policy 

Fixed benefit health insurance plans

Fixed benefit health insurance plans are completely different from indemnity based plans. Under these plans, a fixed, lump-sum benefit is paid if you suffer a claim. The benefit is pre-defined when you buy the policy and it does not depend on the actual financial loss or medical bills that you incur. 

The most common example of a fixed benefit medical health insurance policy is a critical illness policy. The policy covers a list of illnesses and if you are diagnosed with any covered illness, the sum insured is paid in lump sum irrespective of the actual medical costs.

For example, say you buy a critical illness plan of Rs.10 lakhs. You are, then, diagnosed with cancer that is covered under the policy. Upon such a diagnosis, you would get a lump sum benefit of Rs.10 lakhs even if you do not seek treatments or incur any medical costs.

Common fixed benefit health insurance plans include the following –

• Critical illness health insurance plans

• Hospital daily benefit plans

• Personal accident insurance

• Cancer and/or heart-specific health plans issued by life insurance companies 

• Corona Rakshak Policy 

You can buy both indemnity and fixed benefit plans for a comprehensive scope of coverage. You can even have multiple fixed benefit health plans and enjoy multiple claims in a contingency. However, if you buy multiple indemnity health insurance plans, the claim would be limited to the actual loss and you would not be able to make multiple claims from the different policies that you have. For example, if you have two family floater plans of Rs.5 lakhs and Rs.10 lakhs and you incur a claim of Rs.5 lakhs, you can get a claim from anyone policy, not both. On the other hand, if you have two critical illness plans of Rs.5 lakhs and Rs.10 lakhs and you suffer a covered illness, you would get a claim under both policies. 

So, understand the difference between these two types of plans. Indemnity based plans are a must for covering your hospitalisation expenses and should be bought. You can, then, supplement your indemnity coverage with a fixed benefit critical illness and/or other fixed benefit plans for widening the scope of cover.