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What is health insurance - Definition, Meaning

Team AckoOct 6, 2021

Health insurance protects you from financial liabilities in case of medical emergencies in exchange for a payment (premium) to receive these benefits (as per policy coverage) from the insurer. However, due to low awareness of its importance and complex jargon surrounding health insurance, many people find it tedious to identify the right health plan for themselves. However, as much as you hate terminologies, we also like to keep everything simple and easy. In this article, we shall decode the basics of health insurance.

What is health insurance

What is health insurance?

Health insurance meaning is easy to understand. Health insurance is an umbrella term for any insurance plan that offers financial support when you face a medical issue covered under the policy. Some policies provide basic coverage like medical treatments, doctor visits, ambulance charges etc., while some are more specific. For example, a plan that pays for the entire treatment of cancer, this is the health insurance definition for a Critical Illness Policy.

Additionally, there are interesting discounts like No Claim Bonus that increase the sum insured by a fixed percentage (up to a predefined limit) if you don't raise claims during the policy period.

Health insurance also depends upon who is paying for the policy and who is availing of the coverage. For example, employers pay for the health insurance coverage for the employees. Here employees and their dependents receive medical coverage and are beneficiaries of the policy. Thus, health insurance meaning for different individuals can differ as per the plan.

Types of Medical insurance plans

Now that you have understood the health insurance definition, let’s take a look at plans. A health insurance plan can be one of any five major types of policies. You can buy one or more policies as per your financial requirement. Many people often buy more than one plan to receive holistic coverage and to create a strong health insurance portfolio. Here are the five main types of health insurance plans.

  • Individual Health Insurance Policy: Covers an individual in case of any medical emergencies.

  • Family-floater Health Insurance: Covers related family members. The sum insured is available for each of them on a floater basis. To simplify, this means they all get access to the sum insured until it gets exhausted.

  • Group Medical Coverage: Employers provide group health insurance coverage to the employees and their dependents.

  • Critical Illness Plan: Covers the cost of a major illness like cancer, kidney failure, etc. It gives a one-time lump sum benefit to the covered person as per policy terms if diagnosed by any of the listed Illnesses. 

  • Senior Citizen Health Insurance: Health insurance plans that cater to the medical needs of senior citizens are called Senior Citizen Health Insurance plans

Health insurance in India, and how does it work?

In India, health insurance works in the following manner.

Stage 1 - Research 

In this stage, you need to assess your profile, understand how much coverage you need and from which insurance company you need to buy the health insurance plan. So, this is a crucial stage as it will decide your buying decision.

  • Choosing the right coverage: Always choose coverage as per your requirements. For example, singles who are covered under Group Medical Coverage can buy an Individual Health Insurance Plan. Newly married couples can choose to opt for Maternity Add-on in their Family-floater Plan. Those with a family history of a medical issue can choose a Critical Illness Policy.

  • Choosing the right insurance company: Maximum coverage, low price, and prompt services are three main parameters for you to choose your health insurance company. Compare health insurance plans online to know about the coverage and prices that different insurers are offering. Visit social media handles to know the quality of services offered.

Stage 2 - Purchase

The results of your research in Stage 1 will help you find a suitable health insurance policy from a good insurer. You can make the purchase using the following methods.

  • Health insurance online: New-age health insurance companies allow you to buy, renew and even raise claims online. The purchase process is digital i.e. via the insurer's website or through the mobile app. The steps involved are pretty straightforward and similar to purchasing any retail product from an e-commerce website. You get benefits like faster process, convenience, option to compare plans, and discounts when you choose to buy health insurance online.

  • Health insurance offline: You must be aware of the traditional method of buying health insurance offline. Contact an insurance agent or visit the insurance company's office to buy the desired plan. The dedicated relationship manager will guide you through the purchase process and documentation. The insurer will issue your policy after getting approval from the insurer. Offline health insurance is tedious and time-consuming as compared to the online process.

Stage 3 - Claims

You need to raise a claim against your health insurance plan to get financial support from the insurance company. Some insurers need extensive paperwork for submitting claims. At ACKO, we eliminate paperwork by leveraging our digital infrastructure. This allows us to handle claims more efficiently, ensure accuracy and achieve a faster settlement. You can raise a claim through ACKO’s website or app by logging into your ACKO account. All you need to do is upload a few documents - and you’re all set!

Stage 4 - Renewal

It is necessary to renew your health insurance plan if you are looking for continued medical coverage. Renewal is also a great opportunity to review coverage and make the required changes in the policy. For example, shift your parents to a Senior Citizen Plan if they crossed the age of 65 years during the policy period. Increase the sum insured of the policy if more members are added to the family.

Why is health insurance important?

Buying health insurance is not mandatory like purchasing motor insurance. No one will issue a challan or impose a penalty on your name if you don't own a health insurance policy. However, buying health insurance these days is no longer a choice but a necessity. Considering the burgeoning healthcare costs of quality healthcare facilities, we can't stop emphasising the importance of holistic health plans.

Health insurance is important for those who wish to avail the following.

  • Protection against rising medical costs: Medical inflation in India has been at an all-time high. According to the 2020 Global Medical Trends Survey Report, health inflation rose from 11% in 2018 to 12% in 2020, i.e. before and during the first two waves of the COVID-19 pandemic. Additionally, Economists at the State Bank of India have projected a rise of 6% in private health expenditure in the coming years. Health insurance can help in reducing the impact of medical inflation on your finances and reduce out-of-pocket expenses.

  • Quality medical facilities: You might have to compromise on the quality of healthcare if you don't have health insurance. But if you do, it will be easier to avail treatment in a good quality medical facility without thinking about the costs. The quality of treatment and timely availability can help with the faster recovery of the patient.

Benefits of the best medical insurance policy

When you buy a health insurance policy, you get the following benefits.

  • All-round health insurance coverage: Even a basic health insurance policy helps you get hospitalisation coverage that pays for the cost of treatments. You can choose more coverages over and above the basic one by opting for a comprehensive policy with a higher sum insured. Since most common health ailments are covered under health insurance, like accidental injuries, diseases, etc. you don't have to worry about the financial liabilities due to medical expenses.

  • Option to avail of cashless treatments: Health insurance will reduce your financial liability even further with cashless claims. This is one of the methods of raising a claim against your medical policy. Get in touch with your insurance company to raise a cashless claim when you get admitted to the hospital. The insurer or a Third Party Administrator (TPA) will guide you through the claim process. You just have to pay deductibles and the insurer will settle the major portion of your medical bill directly with the hospital.

  • Tax benefits: The Income Tax Act governs the tax liability on an individual's income. Section 80D of this act suggests that if a person is buying health insurance (for self, spouse, children, or parents) then he/she can get a tax benefit. Here are the tax calculations for FY 2020-21.

Condition Premium in rupees: Policy purchased for self, spouse, children Policy purchased for parents Total deduction in rupees
Parents and self are below the age of 60 years Rs. 25,000 Rs. 25,000 Rs. 50,000
Parents are above the age of 60 years. Self and family are below the age of 60 years Rs. 25,000 Rs. 50,000 Rs. 75,000
Parents and self are above the age of 60 years Rs. 50,000 Rs. 50,000 Rs. 1,00,000

Note - The above figures are subject to change as per the corresponding year’s financial budget.

Frequently asked question

We have listed some common questions related to health insurance. You can contact ACKO via email at [email protected] in case of doubts.

How to choose the sum insured of a health plan?

The sum insured of your health insurance plan will depend upon your age, location, health and lifestyle, medical history and the number of insured members. In the case of a floater plan, each member should get an adequate sum insured in case of a medical emergency. Another factor is the type of plan. The sum insured will depend upon which kind of policy you are buying.

Is health insurance an investment option?

Ideally, health insurance does not provide an investment opportunity as it works on the principle of Indemnity (you receive compensation for the loss you have incurred). Thus, treating health insurance as a way of investment can lead to disappointment.

Which are the most popular health plans offered by the Indian government?

To ensure everyone gets access to healthcare facilities at an affordable premium, the central and state governments have devised some excellent health insurance plans that provide basic medical coverage. Here are a few prominent names.

  • Ayushman Bharat Yojana

  • Pradhan Mantri Suraksha Bima Yojana

  • Central Government Health Scheme

  • Employment State Insurance Scheme

  • Chief Minister's Comprehensive Insurance Scheme

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