There is no doubt the cost of healthcare is on the rise. It is fast approaching a stage where it may become too expensive to afford. Health insurance policies are the ideal solution to help pay for expensive treatments. Health insurance provides protection against financial adversities arising out of necessary medical treatment.
How it works - You pay an annual premium in return for which you are covered for a certain amount. If anything unfortunate was to happen to you, the insurance policy will make sure your medical expenses are taken care of, within the limits of the cover. This, of course, is the most basic advantage of health insurance. Its other advantages would include things like comprehensive financial protection for the whole family, covers for expenses like medical checks etc.
While the benefits and importance of life insurance are obvious, the various terms one encounters when buying health insurance can be difficult to understand. They can seem overly technical and intimidating.
Listed below are 35 common health insurance terms you should know and what they mean -
This is the cost of the policy. It is the amount a policyholder pays to the insurer (the company providing health insurance services) for their services. Premiums are determined based on the sum assured or cover offered or chosen under a particular policy.
2. Health insurance policy
The health insurance policy is a document which is legally a contract between the insurer and the insured. It defines the extent and limitations of the health insurance that you have just bought i.e. it stipulates all terms and conditions of the policy including details on the premiums payable, the cover or sum assured, the type of cover availed and the exclusions among other details. It is required when making a claim or as proof of purchase.
3. Grace period
If premiums are not paid on time, policyholders are offered a grace period i.e. the time during which outstanding amounts can be cleared. If dues are not cleared within this time, the policy lapses. It is also the extra time provided to policyholders to renew their policies if they have missed the stipulated renewal date.
4. Freelook period
This period starts from the day you receive the policy and continues for the next 15 days. During the free look period you can return the policy if you are not satisfied with the terms of the policy for a refund of the premium paid (subject to deductions).
5. Policy period
Also known as policy term, this is the period for which the health insurance policy is in effect. It starts from the time that the first premium is paid and ends when the policy expires. The policy period can be extended by renewing it.
6. Policy renewal
Each health insurance policy comes with an expiry date at which time the insurance cover provided ends. The policy period can be extended by renewing the policy i.e. by paying for a fresh term. This act of paying a premium to keep a policy in force is known as policy renewal.
7. Continuous cover
Since each policy has an expiry date, it needs to be renewed from time to time. Once it is renewed the period for which it has been in effect, past and present, is referred to as the continuous cover. For example, if you have a health insurance policy that needs to renewed every year and you have done so for 4 years then you continuous cover is 4 years.
8. Sum insured / Sum assured
This is the amount that you are covered for under the chosen health insurance plan. In the event of making a claim, you will be paid out the amount stated as sum assured in the policy. This may or may not be more than the actual expenses incurred.
Some policies limit the amount you can claim under certain circumstances i.e. the entire amount chosen as sum assured will not be paid out if a sub-limit applies to such claim. For e.g. hospital room expenses can be claimed up to Rs.1,000 a day or ambulance charges can be claimed up to 1% of the sum assured.
10. Third party administrator (TPA)
Third party administrators or TPAs are companies associated with insurance companies which provide services in relation to processing claims. TPAs are licensed by the IRDA (Insurance Regulatory and Development Authority of India) to operate in this capacity.
A claim is a request made by a policyholder to the insurance company to fulfil its financial liability when an event stipulated in the health insurance policy occurs. Claims are always subject to the rules and regulations outlined in the policy.
It is a cost-sharing model in which the policyholder pays a certain percentage of the medical expenses and the remainder is paid by the insurance provider. When policyholders opt for co-payments, premiums are reduced as the company doesn’t bear the entire risk of meeting expenses. For e.g. a co-payment option of 20% limits the insurance company’s liability to 80% of the claim amount while the policyholder pays for the remaining 20%.
Portability is a facility provided to policyholders allowing them to transfer or switch their health insurance policy from one provider to another. These transfers may be governed by certain conditions but ensures that continuity and other benefits earned under the current policy are not lost when switching to a new policy.
14. Cashless facilities
If a health insurance policy offers cashless facilities it means you won’t have to pay your hospitalisation expenses outright. Once you inform the insurer of your hospitalisation they will make the payments directly to the hospital. This is contrary to reimbursements where policyholders pay the hospital and then claim the amount from the insurance company.
15. Cumulative bonus
A cumulative bonus is a facility offered by an insurer where the sum insured can be increased without the need to pay additional or higher premiums.
16. Continuity benefits
Continuity bonus is a reward given to policyholders for holding the policy for a certain period of time or having renewed it on a regular basis.
17. Floater policy
A floater policy generally refers to a policy that let’s policyholders cover more than one person under the same policy. Under this policyholders will be able to cover their family members under their policy instead of getting each person an individual policy. It is an economical option wherein all members are covered by a single sum assured.
18. Overseas medical policy
This is a policy that extends medical insurance cover to the policyholders even when they are outside the country.
19. Personal accident policy
This is a policy that covers instances of personal accidents and helps with paying for medical expenses for injuries along with providing assured payouts in case of death or total permanent disability. These payments may be subject to conditions set forth by the insurer.
If you make a claim for any amount that you have spent on medical treatments and the claim is honoured, the money spent by you will be refunded. This is what is known as a reimbursement.
21. Room rent
When you are hospitalised, you have the option to take a room rather than being made to stay in a ward. The rent for that room will be covered under some insurance policies.
22. Waiting period
The waiting period is the period that has to lapse from the date of policy purchase in order for the policy to take effect. The policy is not always activated immediately but generally a 30 day waiting period applies before claims are entertained. For certain pre-existing conditions, a period of 2 years to 4 years from the date that the policy is bought applies.
There are some ailments or events which are not covered under a chosen policy. These are called exclusions and are stipulated in the policy. Exclusions may even extend to the factors that lead to ailments or injuries.
24. Day-care procedures
These are procedures that do not require hospitalisation beyond 24 hours. Many policies do not cover day-care procedures.
25. Pre and post-hospitalization expenses
There may be times when customers may have to undergo medical tests to determine their medical status or situation, prior to hospitalisation. These tests are considered as pre-hospitalisation expenses.
Once treatment has been availed, there may be tests that need to be conducted to determine the effectiveness of the treatment. These tests may be considered post-hospitalisation expenses. These expenses include medication, recovery expenses etc.
26. Domiciliary care
There may be situations where patients may not be in a condition to be shifted to a hospital or when the hospital cannot accommodate the patient. In such cases the necessary treatment is provided at their homes or another suitable location. This is known as domiciliary care.
27. Emergency care
As the name suggests, emergency care refers to treatment that needs to be performed for symptoms or injuries that present themselves suddenly and may lead to death or permanent disablement.
28. Medical expenses
Expenses that are incurred in the soliciting of treatment for medical conditions may be considered medical expenses. Many insurers will cover these expenses subject to certain conditions.
29. Network & non-network provider
Health insurance companies generally enter into agreements with multiple hospitals or health care providers. These establishments are known as network providers. Any establishment not tied-up with a particular insurance company is considered a non-network provider.
30. Pre-existing disease
A pre-existing disease is defined as an ailment that policyholders have prior to buying a policy. This information needs to be provided to the insurer. It may be discovered via medical screening tests conducted by the issuing company and lead to disqualification for coverage.
31. Unproven/experimental treatment
In case you opt for unrecognised treatments or are in the developmental stages, they are considered unproven or experimental treatments. Most insurers exclude such treatment.
32. Maternity expenses
This includes the costs of delivery, legal termination and pre and post-natal care. Maternity expenses are not covered under most health insurance policies in India and are often covered only on completion of a waiting period varying between 2 - 4 years.
33. Ambulance Charges
In some cases, getting to the hospital and back home from the hospital may require an ambulance. Most insurers will cover this expense too in the policy. These charges are often capped or subject to sub-limits.
34. Daily allowance
Many insurers may offer a particular sum of money on a daily basis which is meant to cover various expenses you or your loved ones may incur while you are hospitalised. This sum is known as daily allowance or cash allowance and may differ across insurers.
Riders are add-on covers that can be bought in addition to existing health insurance policies in order to enhance the cover provided by a standard policy. They can be availed of by paying additional premium. E.g. critical illness covers or personal accident covers. Some riders are built-in features of standard policies that require no additional premium payments.
These basic terms, while not an exhaustive list, will help you understand your health insurance policy better.
Sanjit Agarwal, a Financial Adviser by profession, holds a rich experience of around six years in Personal Finance industry. He loves to write and share reviews, updates, tips, case studies and more on Investments, Tax, Savings, Insurance and more.