What is Health Insurance? A Comprehensive Guide to Benefits, Types, and Importance

02 Feb 2024

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With increasing medical expenses, health insurance acts as a safety net to meet our financial needs. Medical inflation is rising exponentially, and health insurance acts as a financial buffer against medical costs that would otherwise leave one's emergency funds and lifetime savings sufficiently depleted. Not just for individuals, but for the entire family, Health insurance is a necessary part of financial planning and should be integrated with investment purchases as soon as one starts earning. The earlier health insurance is planned, the better coverage is assured for individuals at lower premium rates with no medical tests. We will discuss various aspects of health insurance, their benefits, features, types, and how individuals can choose the right health insurance.

Health Insurance Meaning and Definition

Many hesitate to invest in health insurance, pushing it behind as an unnecessary expense, but in the case of a medical emergency, this preparedness can go a long way. So, what is health insurance? Health insurance is a policy assurance providing immediate financial help when confronted with a medical emergency of various natures like illness, injury, or accident.

How does it work? An insurance policy is framed between two parties, the policyholder, and the insurance company. The medical expense is borne by the insurance company up to the sum insured against a premium paid by the insured. The insurance company compensates medical expenses either with cashless treatment, where the insurance company makes payments to the healthcare center, or reimbursement, where the policyholder clears expenses and claims reimbursement from the insurance company.

Benefits of Health Insurance

Why does one need a healthcare plan? Let us take you through the detailed benefits of health insurance .

Cost of Hospitalization

Covering hospitalization in case of an emergency or normal illness, is the most pertinent benefit of health insurance. The expenses covered range from room charges, intensive care unit (ICU) charges, cost of medical investigation, surgery charges, and daycare expenses; some also cover alternative treatments. The plans cover both pre and post-hospitalization expenses like doctor's fees. Diagnostic charges are also covered. Preventive health check-ups are also planned annually, enabling better health monitoring by individuals.

Helps tackle medical inflation .

Individuals purchasing medical insurance policies are more competent in managing their annual expenses. Soaring medical costs can make you lose a few thousand or even lakhs of rupees easily in case of a medical emergency. By maintaining medical insurance from the early part of one's working career, individuals can better cope with the rising cost of medical expenses.

No claim bonus

Individuals who did not need to make any claim during the policy period are rewarded with an increased insured cover without additional charges.

Income tax relief

Health insurance premiums assure income tax rebate. Health insurance for self and family, elderly parents come at different deduction limits thereby reducing the cost of the health insurance policy from reduced annual income tax benefiting individuals by easing financial strain and saving on tax.

Health Insurance Without Age Bar

The benefits of a health insurance policy are maximum if done early. Low hospitalizations cover the tax benefits for a longer duration.

Individuals can benefit from health insurance at a family stage covering maternity benefits; some policies offer outpatient department (OPD) expenses, fees of the child consultant, and vaccination fees.

In the post-retirement age, sufficient and reasonable coverage is difficult to obtain owing to the age factor and pre-set illnesses. Health is an important consideration as one grows old, setting up a beneficial health insurance policy early in life can meet high-cost medical expenses at low-ticket investments.

Features of Health Insurance

Before purchasing, what features of health insurance policy must you be aware of to make the most prudent purchase? Here are some considerations that will help you decide better.

Hospital network and Cashless settlement

IRDAI has now mandated Health Insurance companies to offer Cashless Hospitalization in every hospital regardless of whether the hospital is empanelled as a network hospital. Opting for Cashless Claims is a better experience than going for Reimbursement process.

Limit of room rent .

Ensure that the health insurance you purchase has no room rent limit and no room type limit. If the room rent range in your policy is up to ₹7000 but the rooms available in the hospital are over ₹10,000, the policy should be such that the bill will be settled proportionately. You should not have to pay the differential sum leaving a huge hole in your pocket. Though health insurance with no room rent and no room type limit is expensive, in the long run this is a beneficial feature of the policy.

Pre and post-hospitalization cover

Your health insurance policy must cover the pre and post-hospitalization expenses. These expenses can include diagnostic tests, investigations, medications, etc. Post-hospitalization expenses are incurred when a person needs to go through follow-up treatments after hospitalization. Average policies offer 30-60 days coverage, but even if it costs more, 60-180 days is a better choice.

Lookout for sub-limits

Health insurance with additional sub-limits coverage are predefined expenses. The claims are capped with fixed values for illnesses and treatments. A percentage is assigned to the sum insured. Even if it costs more, avoid sub-limited policies.

Waiting period

When you are purchasing a policy, all diseases and procedures are not covered. A waiting period is assigned on illnesses you already have of mostly 2-4 years on pre-existing illnesses. Before opting for a policy, understand the waiting period and exclusion and go for a low waiting period policy. Conditions like diabetes and hypertension may be covered at higher premiums in the policy.

A policy with extensive treatments

Some treatments require hospitalization for 24 hours or more while others are done in less than a day, called daycare procedures. These include cataract operations, dialysis, radiotherapy, chemotherapy, etc. Ensure that the policy covers an extensive list of treatments including hospitalization needs for less than 24 hours as well..


This feature in health insurance means that a percentage of the total bill is paid by the individual. Reducing the upfront payment can tax the person additionally during hospitalization. Choosing a zero-copayment policy is a smarter choice.

Types of Health Insurance

Different types of health insurance meet different individual needs. They are:

Individual health insurance

This health insurance covers an individual taking care of the medical cost. The premium depends on a person’s age and medical history.

Family floater

Covering the family, the policy is like the individual insurance plan. The premium of this policy is higher and shared between family members. It is a cost-effective policy without having to manage different health insurance plans.

Insurance for senior citizens

These insurance policies are specially designed for senior citizens over the age of 60. The premium for this claim is quite high as the aged are likely to fall ill often. Insurance does not insist on pre-medical screening or pre-existing diseases as health issues are likely to exist with old age.

Critical illness insurance

This policy is designed to meet treatment for fatal diseases like heart attack, kidney-related ailments, paralysis, cancer, etc. A lump sum is handed upon diagnosis of the disease to the insurer without hospitalization. People with a history of illness can avail of this policy.

Personal accident insurance

This health insurance enables claims after an accident. This policy covers three events namely, partial disability, total disability, or death due to an accident.

Maternity insurance

Covering prenatal and postnatal expenses, delivery and ambulance costs; some also cover costs incurred after the baby is born up to a certain duration. This policy should be taken up after marriage or can be added to a basic policy.

Why do you need Health Insurance now?

Having health insurance today involves several reasons:

Financial insulation:

Health care costs are mounting as medical treatments are becoming more advanced and therefore expensive. Hospitals are offering more patient-friendly facilities and additional expenses are ballooning to unexpected costs. Without the protection of health insurance, medical expenses can dent your lifetime savings.

Access to Quality healthcare :

When someone is ill, living in a good facility helps improve their psychological condition in turn impacting their physical state. Without insurance, these facilities can be difficult to avail owing to high expenses.

No-Cost Preventive Care :

Health insurance covers vaccinations and other preventive care services at no cost which would otherwise need to be bought at a price leading to long-term health outcomes.

Emergency Situations :

Health emergencies happen unexpectedly, with a health insurance sudden financial burden arising from emergency room visits, surgeries, and other urgent medical interventions can be avoided.

Management of Chronic Diseases :

Those suffering from chronic diseases incur recurring financial burdens. Health insurance manages the cost of chronic disease, and, at the same time looks after their health needs.

With health insurance, you can enjoy peace of mind and know that you and your family are protected financially against any untoward medical emergency and that the best health facilities will be available in case of an uncertain medical emergency.

How to choose a good health insurance plan?

When choosing a health insurance plan, the following factors should be considered:

  • Coverage of hospitalization, outpatient care, prescriptions
  • Premiums, deductibles, and copayments
  • Network of hospitals
  • Prescription drug coverage and coverage limit
  • Reading customer reviews
  • Exploring additional coverage features
  • Anticipating future needs
  • Comparing policies of different providers
  • Setting up a budget
  • Seeking guidance from a professional

Also Read: What is Travel Insurance? Exploring Coverage, Types, and Importance


You cannot predict illness; it can strike at any time. The cost of medical treatment is increasing by the day. A simple medical procedure can easily run into lakhs. Health insurance is your only savior in such a condition. Choose a health insurance policy that fits your budget. Having health insurance is no longer an option but a necessity.

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