Key Health Insurance Terms You Must Know

What is health insurance?

Health insurance is a financial safety net wherein the insurer pays for your treatment costs in case of a covered illness. Insurance can be made simple and understandable once you know the meaning of common terms of health insurance that you often come across in brochures and policy documents.

Common terms of health insurance

Here, we attempt to demystify medical insurance terms and conditions so you can buy health insurance knowing exactly what you’re going to get.

• Premium

The insurance premium is the amount you pay for obtaining the insurance policy and its prescribed benefits. This amount can be paid periodically, such as in monthly instalments, or in one lump-sum amount – usually at the start of the insurance coverage period. The premium amount depends on various factors such as age, health of the policy-buyer, occupation, and lifestyle. If the insurance company deems these factors to contribute to fewer chances of you filing a claim, the premium will be lower. Conversely, the premium will be higher if these factors make you likelier to file a claim.

• Sum Insured

The sum insured is the amount that the insurance company pays the policyholder as reimbursement for expenses incurred in case of an illness covered under the policy. The maximum sum insured amount is specified when buying the policy. Therefore, if the total cost of treating the covered illness exceeds the maximum sum insured amount, the policyholder bears the difference.

• Co-payment

Co-payment is a fixed amount or percentage that the policyholder must pay (out of their own pocket) for a covered medical service. The insurance company pays the rest. For example, let’s assume the medical bill is ₹20,000 and the co-payment clause is 20%. In this case, you would be responsible for paying 20% of the ₹20,000, which is ₹4,000. The remaining ₹16,000 would be paid by your insurance company.

This cost-sharing agreement between the insurance provider and the policyholder helps lower the latter’s premium cost.

• Deductible

A deductible is the amount that you, as the policyholder, must pay before the insurer starts paying for covered services. Once you’ve met this annual amount, then the insurer begins to cover for services mentioned in its policy. It’s different from co-payment in that it requires a certain amount to first be met by the policyholder before the insurer begins to pay. Co-payment, on the other hand, involves simultaneous payments from both the insurer and the insured. 

Suppose you have a health insurance policy with a deductible of ₹50,000 per year. And your medical bill is ₹2 lakh for a covered service.

In this case, you would be responsible for paying the first ₹50,000 of your medical expenses out of your own pocket because that’s your deductible. This means you pay the first ₹50,000 and then your insurance company starts to pay for the rest of the expenses.

So, for your ₹2 lakh medical bill, you pay the deductible of ₹50,000 and your insurance company would cover the remaining ₹1.5 lakh.

• Waiting period

The waiting period is a stipulated amount of time that a policyholder needs to wait before the policy benefits kick in or come into effect. Insurers impose a waiting period to cover certain illnesses to prevent policy abuse. During the waiting period, no claims will be entertained. Waiting periods usually start at 30 days and can go up to 2 years for specific illnesses.

• Pre-existing conditions

Pre-existing conditions refer to health conditions that you may have at the time of purchasing a health insurance policy. These may include diabetes, cardiac issues, or even past surgeries or treatments. Insurers want to know about your pre-existing conditions to accurately determine your risk profile and, in turn, the cost of insurance.

• Network hospitals

Network hospitals are trusted hospitals that have an agreement with the insurance provider while offering the benefit of cashless treatment. For non-network hospitals, the policyholder must first pay the hospital and then submit the bills and proofs to the insurer, which will require vetting before reimbursement.

• Claim settlement ratio

The claim settlement ratio is the percentage of successfully paid-out claims against the total number of claims received. The formula is as follows:

Claim Settlement Ratio = (Number of Claims Received/Number of Claims Settled)×100

The higher the claims settlement ratio, the more likely policyholders are to get reimbursed for the covered services. A high claims settlement ratio is indicative of a trustworthy insurer, ensuring confidence amongst its policyholders.

• Exclusion

Not all conditions are covered by health insurance policies. Specific illnesses or rare diseases are excluded from standard policies, i.e., the insurer will not pay for such treatments. Pre-existing diseases, cosmetic surgery, self-inflicted injuries, and war-related injuries are generally excluded from health insurance policies. 

• Renewal

Health insurance policies usually have a one-year validity. Renewal means continuing coverage by purchasing a policy from the insurer. Towards the end of your existing policy, you will be reminded to renew it and consider add-ons or tweaks in the sum insured, etc., to remain covered.

Key Takeaways

Knowing these medical terms and the related conditions will help you significantly when it comes to buying a health insurance plan. Much like other essential services, health insurance in India has gone digital, so now you can simply compare health plans online and buy the policy that is most relevant to you and your condition. Utilize platforms like PhonePe to compare and select the best health insurance plans that perfectly balance affordability and comprehensive coverage.