How Does Health Insurance Work in India

How Does Health Insurance Work in India

In India, the awareness and importance of health insurance have reached more than 50% of the family since COVID-19. But, it’s important to know how health insurance works in India.

A study by National Health Accounts found that in 2016 – 2017, 58.7% of all healthcare costs were paid out-of-pocket. According to a survey published by the Public Health Foundation of India, 55 million individuals were dragged into poverty in 2017 due to the expenses of hospitalization.

Having health insurance would save you spending over the following hospital expenses.

  • Hospitalization Costs
  • Pre- and Post-Hospitalization Costs
  • Ambulance Fees
  • Room Rent
  • Doctor Consultation Fees
  • Daycare Treatment Fees
  • Evacuation Fees
  • Costs Associated with Critical Illnesses, etc.

In this article, we break down how health insurance works, and who all involved in the system or process.

What Is Health Insurance?

Health insurance is a type of insurance and a financial product that covers the medical, pre and post-hospitalization, and diagnostic expenses of an individual or family.

You can avail of any plan for yourself or your family under a proposed premium by the insurance companies for an estimated coverage for a year.

Every insurance company has its features, facility, and waiting period to cover the nature of diseases, and even varies from plan to plan by the same insurance.

It’s mandated for any individual to understand the complete features, terms, and conditions of any plan before purchasing them

How Does Health Insurance Work?

Health insurance firms provide various plans to meet customers’ demands, depending on their age groups, behaviors (smoking & alcohol), and any pre-existing diseases.

Most insurance providers include different insurance add-ons or riders, including health, life, vehicle, home, accident, theft, and business-related insurance.

Customers can select a plan based on their requirements. One can own multiple health insurance policies. Most people would find it challenging to pay for their medical expenses without health insurance.

Purchasing insurance enables people to,

  • Safeguard themselves from the high expenses of medical care.
  • Can avail cashless treatment in the hospitals that are in partnership with the insurance company.
  • Guarantee a sense of safety over your health and assets.

Key Takeaways:

Selecting a plan – A person can choose an insurance policy from an insurance provider of their preference depending on the diseases covered, features, costs, etc.

Companies have different pre-existing condition coverage policies. Therefore, choosing the best plan for oneself is essential while considering all the important elements.

Estimating the premium – The buyer’s premium is determined after choosing an insurance plan. It is calculated based on age, sum assured for coverage, and pre-existing health issues or disorders.

The insurance provider manages a thorough full-body checkup. Only then can the company determine the annual premium for the sum assured coverage you opt for?

How Do Health Insurance Payments Work?

When choosing a plan, consider your overall healthcare costs, not only the monthly premium you pay to your insurance provider.

In addition to your premium, you typically have to pay other charges for your health care, such as a deductible, copayments, and coinsurance.

The “out-of-pocket” expenses significantly impact your total healthcare spending, sometimes even exceeding the premium itself.


A deductible is commonly included in health insurance plans. It is the part of the payment that needs to be settled by you before the insurance policy begins to cover the medical-related expenses.

An example, if your plan includes a Rs.1,000 deductible, you will be responsible for the first Rs.1,000 of the expenses associated with the medical services you get.

Based on your healthcare plan, once you have paid this amount, your insurance will begin to pay some or all of your medical expenses.


Under a health insurance policy, co-pays (co-payments) are the percentages of claims the policyholder is required to pay out of pocket


A coinsurance payment is a portion of your medical costs after your deductible is met. The term coinsurance refers to the fact that both you and your insurance carrier share 100 percent of eligible costs.

For example, If your co-insurance portion is 20%, your health insurance company will cover 80% of the cost of the covered services, leaving you to pay the remaining 20%.

Out-of-pocket Maximum:

An out-of-pocket maximum is the highest value you will be required to pay for your medical costs throughout a plan in a year. This covers the amount paid via deductibles, copay, and coinsurance.

If you reach your out-of-pocket maximum during the year, your health plan will cover the medical and prescription costs until the end of the year.

How Does Health Insurance Renewal Work?

When you get health insurance, you must pay a premium. But this premium is only valid for a specific period. The total amount can be paid annually, biannually, quarterly, or monthly for health insurance policies.

The policyholder must renew their health insurance on or before the validity period has expired. This is important because once a policy ceases, insurance coverage ends. Therefore, renewing your policy before it expires is a must if you want to be covered for medical expenses at all times.

You must contact your insurance provider and ask them to renew your health insurance. It can also be renewed online as an alternative. Just go to the insurance provider’s website, fill in the policy number and the plan that needs to be renewed, and pay the renewal premium to extend your policy term.

Types of Health Insurance Policies:

The following list includes the major categories and perhaps the most popular types of health insurance:

Individual Health Insurance – It is a policy for a single person, where the entire insurance amount is only applied to the insured person.

Family Floater Insurance – The family coverage policies cover every member of the insured family. In this case, the sum insured can be used in part or full by some or all members.

Group Health Insurance – The insurance is offered to employees by employers and corporate entities. These insurance policies are typically group health insurance, where numerous people are covered under a single policy.

Senior Health Care Insurance – These policies are specifically created for seniors aged 65 years and older. Due to the higher possibility of health risks among the aged, health plans for seniors typically have higher premiums.

Critical Illness Insurance – These policies are only intended to cover the costs of serious or chronic illnesses. Diabetes, cancer, heart and circulatory issues, hypertension, and other associated conditions are among these illnesses.

Disease-Specific Illness Insurance – These policies, such as COVID-specific, maternity, and heart-specific health plans, are created to only provide coverage for the ailments listed in the policy.

Bite-Size Health Insurance – Numerous insurance providers have recently launched affordable health insurance policies to cover seasonal illnesses like dengue and other vector-borne diseases.

Top-Up and Super-Top-Up Health Insurance – A regular insurance policy includes hospitalization coverage with a limit, known as a top-up insurance plan. This limit is termed “deductible.” The percentage of the insured amount is the policyholder’s responsibility, and there is no insurance coverage.

Process of Buying Health Insurance:

There are a few important steps to ensure when you buy a policy that meets your and your family’s needs.

1. Identify Your Medical Requirements:

Health insurance is not an investment, it’s a need for every individual who looks for financial freedom. So, it’s mandatory to choose them wisely by matching their terms, and your requirement.

Consider the following factors before purchasing one:

  • Young couples should think about family planning and maternity insurance.
  • A big family must consider the healthcare requirements of each member, including old parents, small children, siblings, and elderly grandparents.

By doing so, you can determine whether you would benefit from individual plans or family floaters.

2. Calculate the Required Amount of the Sum Insured:

Consider current healthcare expenses, as well as future predictable and unexpected expenses. Don’t forget to take inflation into account. India has the highest overall inflation rate, primarily driven by medical costs.

We would advise choosing any health insurance with a coverage of 50 lakhs to 1 crore a year. Never take health insurance with a coverage of 5 or 10 lakhs a year.

3. Compare Health Insurance Policies and Providers:

When you clearly understand your needs, choose a few health insurance policies from various providers and boost your personal financial goals. You should compare multiple plans and consider the following differences to identify the benefits:

  • Premium
  • Add-on or Riders Provided
  • Range of Pre- and Post-Hospitalization Coverage
  • Illnesses and Ailments Covered
  • Flexibility: Option for Portability, Opportunity to Include a New Member, and Freedom to Change the Amount of Coverage.
  • Performance Ratings and the Insurance Company’s History
  • Hospitals in the Network
  • Company’s Claim Settlement Ratio
  • Facility for Cashless Claims
  • Pre-Existing Condition Waiting Time
  • Pre-Existing Conditions Clauses
  • Provisions for Sub-Limits and Co-Payments
  • Exclusions

4. Share Complete and Accurate Information:

When choosing an insurance plan, provide all necessary information completely and accurately. Any discrepancies in hospitalization or other medical emergencies could lead to the policy or claims being rejected.

What is the Claim Process for Health Insurance?

Claims are the requests made by policyholders to insurance companies for compensation/payment for medical treatment expenses.

There are two main categories of claims:

  1. Cashless Claim (No-Cash)
  2. Reimbursement Claim (Refund)

Health insurers have several procedures that must be followed for both claims within the first few days to a few weeks following the hospitalization. The process often includes the following:

  • Completing a claims form.
  • All necessary paperwork.
  • Notifying the insurance provider about the medical treatment/emergency within a predetermined time.
  • The insurance provider then looks into the paperwork before disbursing the money.

Cashless Claim:

A cashless claim is a contract between the insurer and the network hospitals that enables policyholders to receive treatments without making any charges. In this kind of claim, the insurer pays the hospital directly. The policyholder doesn’t need to pay initially and wait for the insurance provider to refund them.

Generally, this procedure goes as follows:

  • Get health treatment at a hospital that is a part of the insurance policy’s network.
  • Submit a claim form for your health insurance at the hospital.
  • Either the insurance provider sends approval to the hospital or raises a query in case of missing information.

Reimbursement Claim:

The policyholder is required to pay the hospital in this type of claim, and the insurer will repay them after they have completed the required steps, as mentioned below:

  • Medical and hospital expenses must be submitted to the insurer along with a claim form.
  • The insurer then investigates the documents.
  • The insurance provider provides an approval letter if the claim is accepted.
  • If a claim is rejected, the policyholder receives a rejection letter explaining the reasons.


It is essential to have proper health insurance for you and your family considering our modern lifestyle and the spread of diseases. Medical insurance can be easily obtained and used. Make sure you understand how health insurance functions to experience it without any problems. Everyone can benefit by owning one.

Additional benefits of health insurance policies include tax deductions under section 80D and free medical check-ups, among many other things. You should choose an insurance policy carefully while considering their needs.

If you need assistance in choosing the best plan that suits you, contact Fincareplan, and our experts will reach out with a better solution.


  1. Is There an Age Limit for Purchasing Health Insurance?

    In India, most health insurance providers set a maximum buying age and entry and exit ages. But it also depends on the type of insurance coverage you have. Anyone can have health insurance, whether they are a newborn, teenager, senior citizen, or 90-year-old.

  2. What would be the Perfect amount of Health Insurance?

    Depending on the policyholder’s age, health problems, and medical history, various people have different requirements for the sum insured. It is preferable to have a higher coverage amount of up to 50 lakhs or 1 Crore due to the rapid annual increases in healthcare costs.