How does health insurance work in India? [Free Guide : 2021]

Before discussing how health insurance works in India, I would like to shed some light on the current position of the health insurance industry.

The health insurance industry in India has witnessed tremendous growth in the last year.

Still, at present, almost 500 million people in India are covered under any health insurance scheme.

And the majority of them are covered under government-sponsored schemes.

Personal health insurance penetration is still very low.

Covid 19 pandemic has become an eye-opener for many families in India.

If you have not experienced it, You must have at least seen that so-called permanent jobs are not permanent.

And how medical expenses can wash out years of hard-earned savings.

Personally, it was an eye-opener for me as a financial advisor.

I love advising on mutual funds and the stock market because they create wealth, it give positive vibes.

But, any kind of insurance sounds like a negative product.

You have to remind your client about accidents, death, and severe illness to sell those products.

So, despite being completely insured, I avoided talking about insurance products with clients.

It gives negative vibes and I did not want it.

But, Covid 19 was an eye-opener for me as an advisor.

I saw families broken because their sole earning member died in Corona.

I saw people withdrawing their hard-earned FD for medical expenses.

I saw financially distressed people without jobs.

I saw people withdrawing their long-term deposits like PF because of high medical expenses and no jobs.

I took 2 lessons out of it.

First thing, Death is an inevitable thing.

So even if it is not good to talk about it, earning members must have life insurance to protect income for the family.

Second thing, Pandemic or no pandemic, medical expenses can eat all savings.

For both of these unforeseeable events, everyone should provide some part of their income for protection against risk.

And if we talk about India, I have seen high mis-selling of insurance products.

Policyholders do not even know the benefits of the policy they hold.

Because of this, I thought of writing a detailed article on insurance products.

In this post, I will provide a complete guide on how health insurance works in India.

After reading this post, You will have a clear idea about health insurance and why you need it.

This post will also help you in debunking prevalent myths and misinformation about health insurance.

So, First of all,

What is health insurance?

Health insurance is a type of insurance that covers all medical expenses incurred due to illness.

It may cover these experiences either for you or a full family.

These medical expenses can be in any form like doctor’s fees, medicines, and hospitalization.

Many hospitals provide cashless facilities, so you don’t have to spend money at the hospital, your insurance company will directly pay the hospital.

So, health insurance takes care of your sudden medical expenses that can make a big dent in your pocket.

Health insurance companies charge a small premium annually for health coverage.

How does health insurance work in India

Let’s try to understand it with an example,

For a single person in his 20s, a health insurance premium may be around 5,000 rupees per year, and for that premium, he or she gets cover of 5,00,000 rupees.

It means he or needs to pay just 5000 annually and he or she can spend 5 lakh rupees in a year on medical expenses.

If he doesn’t claim any medical expenses, he may get a discount on next year’s premium.

Health insurance is a type of general insurance, so it expires in 1 year.

After one year it is required to be renewed with a premium.

With age, health insurance premiums increase.

The reason is simple, with age health risks increases, so insurance premium also increases for the same coverage.

For health coverage of more members in the family, the premium would be higher.

Health insurance just covers your medical expenses due to illness.

It doesn’t cover death like a term plan. Because it is general insurance.

Life insurance covers death benefits, not health insurance.

Health insurance doesn’t pay back premiums like other bundled insurance products like ULIP

So, it was all about health insurance.

Now, the question may arise

Why health insurance is required

I am sure the COVID-19 pandemic has taught many people why health insurance is required.

Still, let us try to understand with one simple example why health insurance is required.

We have two different scenarios

Two friends named A and B are going on a bike.

They met with an accident.

And imagine both got similar injuries.

Both were hospitalized.

After 7 days they both were discharged and they incurred 1-1 lakh bill for all the medical expenses during 7 days.

Friend A did not have any health insurance.

His salary is not so high that he can pay 1 lakh in one shot.

So, he had no option other than borrowing from relatives or friends ( which is a very bad idea).

As a second option, he could withdraw FD and forget interest or take a personal loan on salary and pay high interest.

While Friend B had bought a health insurance cover of 5 lakh for a small amount.

The hospital was providing a cashless facility on health insurance.

So, he used a health insurance card and claimed 1 lakh rupees under his health insurance coverage.

The insurance company paid directly to the hospital on behalf of B

And B went home peacefully.

Now, give it a thought.

If you faced a similar situation, Who would you like to be, Like A or B?

This is the answer to why health insurance is required.

Now, if you are thinking that you would like to be like Friend B

Then you will have a thought that

How much health insurance do I need?

Now you are well aware of why health insurance is required.

The rise of lifestyle diseases and increasing accidents makes health insurance necessary for everyone.

Young people in their 20s should have health insurance coverage of at least 3 lakhs.

Because at a young age chances of illness are low, the premium will be low.

So having a cover of 3 lakh helps in increasing insurance coverage more in coming years when it will be more required.

For a person with a family of 4 or health insurance for aged parents requires more coverage.

Generally, I have seen, that for a family of 4, combined insurance cover of 10 lakh is enough.

For aged parents, health insurance should cover cardiac surgery and heart diseases because they cost a lot.

Ideally, your health insurance coverage should be at least 50% of your annual income.

As you now know how much health insurance coverage you should have, you should check

How to buy health insurance

In India, there are so many options from where you can buy health insurance.

You can buy it online from platforms like Policy Bazaar or websites of general insurance companies.

Or you can buy it from registered insurance brokers or banks.

When you do it online, you will have to study all the health insurance products on your own.

While claiming insurance too, you will have to do it on your own.

This method of buying is only recommended if you have good knowledge about health insurance products.

You can buy it from a registered broker or a bank as well.

They will provide you with services like advising suitable health insurance products, filling forms for you, and helping you in settling claims.

In my opinion, buying health insurance from a registered broker is a better option because,

Health insurance is a kind of product that a person may not be in a condition to claim if he is severely ill.

So, there should be any person aware of his health insurance who can help in settling his claim.

Registered brokers can be a good helping hand in that situation.

When you buy health insurance, you should disclose existing long-term illnesses if you have any.

You are required to give your ID and residence proof.

For an older age, health tests will be required.

The insurance consultant will guide you through all the documents you will be required to submit.

One more important thing is that health insurance policies come with certain terms and conditions.

Like,

Surgeries are covered after a specified period, after buying health insurance.
Upper cap or no cap on the daily cost of hospitalization
Some illnesses may be covered after a specified period
Free annual health check-up.

Terms may differ from product to product and insurance company.

So, you should ask about all the benefits and terms and conditions to your insurance advisors

Last thing,

Which is the best insurance company in India?

After the entry of the private sector in insurance there are so many options in health insurance.

To my knowledge, Star Health Insurance, Religare, HDFC Ergo, and Bajaj Allianz provide nice health insurance plans.

I like the policies of Star Health Insurance.

Star Health Insurance is one of the oldest health insurance houses in India.

They offer very good policies at a cheaper cost.

Now, Let’s have a look at some

Frequently Asked Questions

What is the minimum and maximum age for buying health insurance in India ?

There is no minimum age to buy health insurance in India.
Even though newborn babies are not eligible for individual health insurance, they can be included in family floater or group insurance.
But generally, health insurance companies allow newborn babies in family floater schemes, only after 90 days of birth.

For upper limit, Health insurance companies provide health insurance products for senior citizens.
Where the minimum entry age is 60 years and upper age is 75 or 80, it varies from company to company.
Some companies provide renewability up to the age of 90.

What is the difference between Mediclaim and health insurance?

In India the majority of salaried people are covered under Mediclaim by their employers.
Mediclaim is a corporate group insurance policy and not individual health insurance.
Often salaried people misunderstand Mediclaim for health insurance, but there are some differences. Like,
1. Mediclaim provides narrow coverage like hospitalization cost, accidents or some predefined diseases other costs like treatment will have to be borne by the person. Mediclaim does not offer any additional riders for critical illness.
While health insurance is a comprehensive insurance plan, it covers pre and post hospitalization cost, treatment, surgery, and ambulance. Health insurance provides riders for critical illness and loss of income due to accidents.
(In insurance, rider means add-on to basic policy, riders provide some extra benefits like accidental death, critical illness for little extra cost. Riders are completely optional as per your requirement)
2. Mediclaim do not offer flexibility in terms of coverage and duration, if it is provided by the employer, then it ends with term of employment.
While health insurance provides all flexibility to increase or decrease coverage and premiums. Policy duration can also be increased with health insurance.
3. Mediclaim do not cover critical illnesses
While health insurance covers almost 30 critical illnesses like cancer.
4. For Mediclaim you need to be hospitalized, otherwise it can not be claimed..
In health insurance, not just hospitalization, even day care treatment are also covered. And it is big advantage of health insurance over Mediclaim.

In my opinion, one should have individual health insurance regardless of having Mediclaim or not.

What is waiting period in health insurance ?

Waiting period is the specific period of time buying health insurance, during which you can not claim all or certain benefits of health insurance.
Purpose of the waiting period is to stop people buying health insurance, when they are already aware of their illness and its high cost. It is unethical and you should not do that.
Waiting period may differ from company to company.

What is Copay (Co payment) in health insurance with example ?

In health insurance, there is a clause named Copay or Co payment.
It applies to some illnesses and the copay clause may differ from company to company and policy to policy.
Copay simply means that cost of that specific illness will be borne by both, policy holder and insurance company in pre defined ratio.
Let’s try to understand it with a simple example.
Person A is hospitalized for some illness. He incurred 1,00,000 rupees for treatment.
Now just assume that illness has a Co payment clause and Copay is 10%.
It means that 10% of 1 lakh rupees, 10,000 rupees will have to be borne by person A and the rest 90,000 will be paid by the insurance company.
Health insurance policies with Copay clause have lower premium than regular premium.
So, before you buy any health insurance, it is necessary to check all copay clauses in the product.

Conclusion

So, that’s it about health insurance.

I think I have covered most of the things you should know about how health insurance works in India.

We covered everything from what is health insurance to why health insurance is required.

You should buy health insurance as soon as possible for yourself and your family if you have not taken it yet.

What do you think about it? Let me know in the comment section.