Difference Between Fixed Benefit Plans and Indemnity Plans

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Health insurance plans come in many forms. With the rising need for healthcare and the differing requirements of customers, companies now offer multiple plans in their lineup to ensure that all their needs are satisfied. When it comes to the benefits offered by health insurance, there are indemnity based plans and fixed benefit plans. While health insurance plans are available in different types, it is must be noted that these are not based on the choice of customers.

Most of the mediclaim plans available in the market are indemnity based plans that reimburse policyholders based on the medical expenses incurred. Here, the benefit is based on the actual medical expenses incurred. Fixed benefit plans, on the other hand, pay a fixed amount as compensation irrespective of the medical expenses. Fixed benefit plans are mostly limited to certain types of health insurance such as critical illness covers, personal accident covers, disease specific covers, etc.

Advantages of indemnity plans

Indemnity plans provide hospitalisation benefits up to the sum insured amount chosen by the policyholder. For instance, if you have a comprehensive health insurance plan for Rs.5 lakh and you incur medical expenses worth Rs.2.5 lakh for a surgery, the insurer will now reimburse the actual medical expense (Rs.2.5 lakh) to you upon submission of all relevant documents. Some of the key benefits of indemnity health insurance plans can be given as follows:

• A range of illnesses and injuries are covered by indemnity health insurance plans. Fixed benefit plans do not provide any coverage for regular hospitalisation expenses incurred by the policyholder.
• A policyholder can make multiple claims in a policy year within the maximum sum insured limit. In the above given example, if you make a second valid claim worth Rs.1 lakh within the same policy year, the insurer will honour this claim and pay the claim amount.
• One of the attributes of indemnity plans is the ease of settlement through cashless hospital treatment. In the network hospitals of the insurer, policyholders can easily get access to cashless treatment by providing their insurance details. Here, the bills are directly sent to the insurer for reimbursement.
• Plenty of flexible options are offered for policyholders in indemnity health insurance plans. In addition to choosing the sum insured amount, certain plans also allow for voluntary deductible options to get premium discounts.

Limitations of indemnity plans

Though there are plenty of benefits that can be availed through indemnity based health insurance plans, they do come with certain limitations:

• The most obvious limitation of an indemnity based plan is that it does not cover any non-medical expenses incurred by the patient. During the time of hospitalisation, a patient and family experiences various expenses related to food, travel, comfort, etc. These are not covered by regular health insurance plans.
• Indemnity plans require extensive documentation of all medical expenses. An insurer will compensate for medical expenses only when adequate proof is submitted. Policyholders must maintain all documents like medical bills, cash receipts, discharge summary, diagnostic reports, etc.
• Indemnity plans do not have any provisions to provide compensation for the family when a policyholder is down with a medical condition. These plans provide reimbursement only for medical expenses. Any income loss due to hospitalisation is not covered here.

Advantages of fixed benefit plans

In fixed benefit plans, the full sum insured amount is paid to the policyholder upon the occurrence of an eventuality that may give rise to a claim. Regular health insurance plans are not offered as fixed benefit plans. Critical illness covers, personal accident covers, daily hospital cash coverage, etc. are the commonly available fixed benefit plans. Some of the major advantages of fixed benefit health insurance can be given as follows:

• Fixed benefit plans are mostly used to cover expenses that are not typically covered in a health insurance plan. The lump sum benefit obtained in these plans can be used for any purpose without any restriction.
• Fixed benefit plans provide the settlement upon the occurrence of an eventuality. For instance, a critical illness cover provides the full sum insured amount upon the first diagnosis of cancer. A personal accident cover provides the settlement amount following the death or disability of the insured person.
• Documentation is very minimal in a fixed benefit plan. Since the settlement is provided on the first occurrence of an eventuality, the insured needs to submit proof only for that. Extensive maintenance of medical bills and diagnostic reports are not required here.
• Some of the fixed benefit plans like personal accident covers have provisions to take care of the insured’s family following death or disability. Some personal accident covers provide compensation for children’s education and loss of monthly income. You can also boost these policies with some additional rider covers.

Limitations of fixed benefit plans

Despite the range of benefits offered by fixed benefit plans, there are certain limitations associated with these plans. Some of the common limitations here include:

• There is a survival period in some plans like critical illness covers and cancer insurance covers. The lump sum amount is payable only if the insured person outlives this survival period. If the insured person dies before the completion of this survival period, the insured’s family will not get anything from these insurance covers.
• The actual medical expenses incurred by a patient following an illness or injury is not covered by this policy. If you only have a critical illness policy, you cannot claim benefits for any other hospitalisation expense no matter how substantial the condition is.
• The coverage offered by fixed benefit plans are very specific and limited. Though multiple rider covers are available, the cost of premiums may not be affordable to everyone.

Conclusion

Once you read through the benefits and limitations of these plans, you can understand that one type of cover is not the alternative to the other. It is better to have both to ensure that you are well protected from various hazards. A regular health insurance cover can help you with your medical expenses while a fixed benefit plan can help you take care of other expenses. Most of the indemnity based health plans offered by top insurers come with add-on covers that offer fixed benefits. Hence, it is very much possible to get benefits under the same policy. With adequate coverage of both types of health insurance plans, you can ensure financial security against various unpredictable medical expenses.